This comprehensive Glossary of commonly used insurance terms is a companion to the articles and FAQ's contained in this site. If you've run across a confusing term, you'll probably find it - and a simple definition - in the glossary list.
absolute
assignment
An irrevocable transfer of complete ownership of a life insurance
policy from one party to another. See also assignment.
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accelerated
benefits
Some companies provide "accelerated benefits," also known as "living
benefits." This rider allows you, under certain circumstances,
to receive the proceeds of your life insurance policy before you
die. Such circumstances include terminal or catastrophic illness,
the need for long-term care, or confinement to a nursing home.
Ask your agent
for information about these and other policy riders.
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accidental
death and dismemberment (AD&D) rider
A supplementary benefit rider or endorsement that provides for
an amount of money in addition to the basic death benefit of a
life insurance policy. This additional amount is payable only
if the insured dies or loses any two limbs or the sight of both
eyes as the result of an accident. Some AD&D riders pay one
half of the benefit amount if the insured loses one limb or the
sight in one eye.
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accidental
death benefit (ADB) rider
A supplementary benefit rider or endorsement that provides for
an amount of money in addition to the basic death benefit of a
life insurance policy. This additional amount is payable only
if the insured dies as the result of an accident.
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accidental
means provision
A life insurance policy accidental death benefit provision which
states that an accidental death benefit will be payable if the
insured's death was the result, directly and independently of
all other causes, of bodily injury caused solely by external,
violent, and accidental means.
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accidental
result provision
A life insurance policy accidental death benefit provision which
states that an accidental death benefit will be payable if the
insured's death was the result, directly and independently of
all other causes, of accidental bodily injury.
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accident
perils
A classification used by health insurance underwriters to evaluate
the type and degree of peril represented by a particular occupation.
Accident perils include exposure to fire, the use of dangerous
machinery, the handling of heavy objects, and the risk of falling.
See also illness perils.
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accrued
benefit
In a defined benefit pension plan, the amount of pension benefit
which has accumulated in a pension plan on behalf of an individual
plan participant at any particular time.
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accumulated
cost of insurance
A factor used in the calculation of life insurance reserves. For
a given group of insured's, the accumulated cost of insurance equals
the net single premium that would have to be paid at the end of
the term of coverage by the surviving insured's to provide death
benefits on the insured's who died during the term.
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accumulated
funding deficiency
In the United States, the amount by which a qualified pension
plan fails to meet the minimum funding standards set by law. Plans
with an accumulated funding deficiency are subject to a penalty
tax and enforcement provisions. Sometimes simply called a funding
deficiency.
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accumulated
value
An amount of money invested plus the interest earned on that money.
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accumulation
at interest option
A life insurance policy dividend option under which policy dividends
are left on deposit with the insurer to accumulate at interest.
Also called the accumulation option.
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accumulation
period
The period during which premiums are payable on a deferred annuity.
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accumulation
units
The term used to identify ownership shares in a variable annuity's
separate-account fund. When a person pays premiums for a variable
annuity, those premiums are credited to the purchaser's account
as a certain number of accumulation units. After the accumulation
period ends, the accumulation units are used to buy annuity units.
See also annuity units.
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acquisition
expenses
See policy acquisition costs.
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actively-at-work
provision
A provision found in many group insurance contracts which specifies
that, if an employee is absent from work because of sickness,
injury, or certain other specified reasons, on the day the employee's
coverage under the contract is due to begin, then coverage will
not begin until the day the employee returns to work.
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actuarial
assumptions
(1) The mortality, morbidity, interest, expense, and other forecasts
used to calculate premium rates and reserves. (2) In pension planning,
the assumptions that actuaries make in the areas of investment
earnings, mortality, plan expenses, salary levels, and employee
turnover. These assumptions affect the amount of the annual contribution
that is necessary to adequately fund a defined benefit pension
plan.
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actuarial
cost method
For a defined benefit pension plan, a method of calculating the
annual amount a plan sponsor must contribute to fund a given set
of plan benefits for a particular group of participants.
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actuarial
department
The department in a life and health insurance company responsible
for seeing that the company's operations are conducted on a mathematically
sound basis. In conjunction with other departments, it designs
and revises a company's life and health insurance products. The
actuarial department calculates premium and dividend rates, determines
what a company's reserve liabilities should be, and establishes
non forfeiture, surrender, and loan values. It also does the research
needed to predict mortality and morbidity rates, to establish
guidelines for selecting risks, and to determine the profitability
of the company's products.
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actuarial
valuation
A determination by an actuary of the value of a pension plan's
assets and its liabilities. The valuation, which is based on statistical
probability, is used to determine if the assets are adequate to
fund the plan's liabilities. If the value of the assets is not
adequate, the plan sponsor must increase its contributions to
make up the deficiency; if the assets are more than adequate,
the plan sponsor can reduce contributions. Also called plan valuation.
actuary
A technical expert in life insurance, particularly in mathematics.
A person in this job applies the theory of probability to calculate
mortality rates, morbidity rates, lapse rates, premium rates,
policy reserves, and other values.
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additional
term insurance option
A life insurance policy dividend option under which policy dividends
are used as a net single premium to purchase one-year term insurance.
Also called the additional insurance option or the fifth dividend
option.
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adjustable
life insurance policy
A life insurance contract designed specifically to allow the policy owner
to alter the policy's plan by changing the amount of the coverage
or the amount of the premium. The insurer calculates the specific
plan of insurance that can be provided based on the requested
death benefit and premium. Therefore, an adjustable life insurance
policy can use insurance plans that range from a term insurance
policy of short duration to a limited-payment whole life insurance
policy.
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administrative
services only (ASO)
An arrangement whereby an organization (usually an employer) hires
an outside firm to perform specific administrative services, usually
including claim administration, for a group health insurance program.
The organization retains financial responsibility for paying claims.
See also self-insured group insurance and third-party administrator
(TPA).
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admitted
reinsurer
In the United States, a reinsurer which is licensed to accept
reinsurance in a given jurisdiction. Also called an authorized
reinsurer. Contrast to non-admitted re insurer.
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advanced
underwriting department
An insurance company home office department responsible for providing
technical and sales assistance to agents involved in estate planning
and business insurance cases. Also known as the estate planning
department.
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advance
funding
A procedure in which a pension plan sponsor deposits amounts of
money in a fund during the working years of plan participants
to guarantee payment of pension benefits to the plan participants
when they retire.
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adverse
selection
See ant- selection.
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Age Discrimination
in Employment Act of 1967 (ADEA)
United States legislation that protects employment rights of individuals
age 40 and over. ADEA prohibits age-based firings and generally
prevents employers from forcing employees to retire at age 65.
In relation to pension plans, ADEA prohibits employers from discontinuing
contributions or benefit accruals to an individual's pension plan
after that person reaches age 65.
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agency
The legal relationship between an agent and a principal. See agency
relationship.
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agency
agreement
An agreement between a principal and an agent that describes the
scope of the agent's actual authority. See agent and principal.
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agency
bank
A mutual savings bank that does not sell its own savings bank
life insurance policies to the public but, instead, sells such
policies as an agent for an issuing bank. An agency bank only
accepts applications, collects premiums, and provides service
for its policy owners. See also issuing bank and savings bank life
insurance (SBLI).
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agency
by appointment
An agency relationship that is created when a principal appoints
an agent to act on the principal's behalf. See agency relationship.
Contrast with agency by ratification.
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agency
by ratification
An agency relationship that is created when the principal ratifies
a purported agent's unauthorized act. See agency relationship.
Contrast with agency by appointment.
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agency
relationship
In law, the relationship between two parties by which one party,
the agent, is authorized to perform certain acts on behalf of
the other party, the principal.
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agency
system
A distribution system in which insurance companies use their own
commissioned agents to sell and deliver insurance policies. The
agency system is the most common system for distributing individual
life insurance products and includes the branch office distribution
system and the general agency distribution system. Also called
the ordinary agency system. See also branch office distribution
system, brokerage distribution system, and general agency distribution
system.
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agent
A party who is authorized by another party, the principal, to
act on the principal's behalf in contractual dealings with third
parties. Called a mandatary in Quebec. See also insurance agent.
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agent-brokers
Career agents who place business with companies other than their
primary companies. Also known as agents of other companies, surplus
brokers, or simply brokers.
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agent of
record
The agent or broker who is recognized by the insurer as the person
to whom the commission is to be paid.
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agent-owned
reinsurance company (AORC)
A captive reinsurance company formed by an insurance company and
owned by a group of the company's agents. The company insures
all business written by those agents with the captive so that
the agents can share in the profits of their own labor.
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agent's
statement
The portion of the insurance application in which the agent reports
anything he or she knows or suspects about the proposed insured
that is not reported by the applicant or proposed insured.
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age of
majority
The age at which a person has the legal capacity to enter into
and be bound by a contract.
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aggregate
funding methods
Pension plan funding methods in which the amount of contributions
necessary to fund a plan is determined in the aggregate for all
plan participants, rather than separately for each individual
plan participant. Contrast with individual funding methods.
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aggregate
mortality table
A mortality table based on the experience of all insured lives,
including mortality rates both during and after the select period.
The mortality rates of an aggregate mortality table fall between
those of the select and the ultimate mortality tables. See also
mortality tables, select mortality table, select period, and ultimate
mortality table.
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aleatory
contract
A contract under which one party provides something of value to
another party in exchange for a conditional promise, which is
a promise that the other party will perform a stated act if a
specified, uncertain event occurs. Insurance contracts are aleatory
because the policyowner pays premiums to the insurer, and in return
the insurer promises to pay benefits if the event insured against
occurs.
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alien corporation
In the United States, a company that is incorporated under the
laws of another country. Compare to domestic corporation and foreign
corporation.
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alienation
of benefits
In pension planning, the assignment of a plan participant's benefits
to an individual other than the participant. In the United States,
ERISA generally prohibits the alienation of benefits, although
exceptions to this rule include the use of a participant's vested
benefit as collateral for a loan. The ERISA prohibition on alienation
of benefits prevents creditors from attaching an individual's
pension benefits.
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all-causes
deductible
In health insurance, a deductible which need only be satisfied
once during a given period of time. If the period of time is a
calendar year, as it usually is, then this type of deductible
is known as a calendar year deductible. Contrast with per-cause
deductible.
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allocated
funding
A method of funding a pension plan in which a portion of the total
plan funds is allocated to each participant. This type of funding
is often achieved through the purchase of annuities or insurance
contracts for each participant. Contrast with unallocated funding.
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American
Council of Life Insurance (ACLI)
In the United States, an organization which collects and disseminates
data on life insurance markets.
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Annual
Information Return
In Canada, a report containing financial and other information
that pension plans must file annually with the appropriate provincial
or federal government.
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annually
renewable term (ART) insurance
See yearly renewable term (YRT) insurance.
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Annual
Report Form 5500
In the United States, a detailed report of membership and financial
information pertaining to the operation of a pension plan. This
report must be filed annually with the Internal Revenue Service.
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Annual
Statement
An accounting report that insurers must file each year with the
appropriate regulatory agency. This report contains detailed accounting
and statistical data that regulators use to evaluate a life and
health insurance company's solvency and its compliance with insurance
laws.
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annuitant
(1) The person designated to receive annuity payments. (2) The
person whose lifetime is used as the measuring period to determine
how long benefits are payable under a life annuity.
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annuity
(1) A series of payments made or received at regular intervals.
(2) A contract that provides for a series of payments to be made
or received at regular intervals. There are many kinds of annuities.
For the annuities identified in this glossary, see annuity certain,
annuity due, annuity immediate, deferred annuity, deferred life
annuity, disabled life annuity, flexible premium annuity, group
deferred annuity, immediate annuity, joint and survivor annuity,
level premium annuity, life annuity, life annuity with period
certain, refund annuity, single premium annuity, single premium
deferred annuity (SPDA), straight life annuity, temporary life
annuity, temporary life annuity due, variable annuity, whole life
annuity, and whole life annuity due.
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annuity
certain
An annuity that provides a benefit amount payable for a specified
period of time regardless of whether the annuitant lives or dies.
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annuity
due
A series of payments in which the payments are made at the beginning
of each interval of time.
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annuity
immediate
A series of payments in which the payments are made at the end
of each interval of time.
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annuity
mortality table
A tabulation of probabilities of dying at each age. Used by actuaries
to calculate premiums and reserves for annuities in which benefits
are paid only if a designated person is alive. Annuity mortality
tables usually project lower rates of mortality than do mortality
tables that are used for life insurance. See also mortality tables.
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annuity
period
The time between each benefit payment made under an annuity contract.
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annuity units
The term used for ownership shares in a variable annuity's separate-account
fund after the accumulation period has ended. Annuity units are
bought with accumulation units and are used to determine benefit
payment amounts. See also accumulation units.
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antiselection
The tendency of people with a greater-than-average likelihood
of loss to apply for or continue insurance to a greater extent
than do other people. Also called adverse selection or selection
against the insurer.
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apparent
authority
Authority that is not expressly conferred on an agent but that
the principal either intentionally or negligently allows a third
party to believe the agent possesses. See agent and principal.
Compare to express authority and implied authority.
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applicant
The party applying for an insurance policy.
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application
A form that must be completed by an individual or other party
who is seeking insurance coverage. This form provides the insurance
company with much of the information it will need to decide whether
to accept or reject the risk.
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approval
type temporary insurance agreement
An agreement issued in conjunction with a conditional premium
receipt that provides temporary life insurance coverage as of
the date the insurer approves the proposed insured as a standard
risk. See also conditional premium receipt and temporary insurance
agreements. Compare to insurability type temporary insurance agreement.
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assessment
method
An early method of funding life insurance under which members
of the plan were charged in advance for the amount of money that
the administrators estimated would be needed to pay each year's
death claims. Also called the pre-death assessment method. See
also mutual benefit method.
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asset-liability
matching
The process of investing, purchasing, selling, and otherwise adjusting
an insurance company's asset holdings so that cash is available
when it is needed to cover the company's liabilities.
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assets
All things of value owned by an individual or organization. Examples
of assets include cash, data processing equipment, and investments.
Assets are shown on the balance sheet of a life insurance company's
Annual Statement as required by law or by insurance department
ruling.
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asset share
The amount of assets that any block of insurance policies will
have accumulated by a given time.
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asset share
calculation
A computation that simulates the way in which the assets of a
block of policies should grow, depending on various assumptions
about future interest rates, mortality, morbidity, expenses, lapses,
etc.
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assignee
The party to whom all or certain contractual rights are transferred
under an absolute or collateral assignment.
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assignment
(1) The transfer of ownership rights in a life insurance policy
or other type of contract from one party to another. (2) The document
that causes the transfer of ownership rights to go into effect.
See also absolute assignment and collateral assignment.
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assignment
of benefits
An authorization directing an insurer to make payment directly
to a provider of benefits, such as a physician or dentist, rather
than to the insured.
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assignor
The person or party who transfers certain contractual rights under
an absolute or collateral assignment.
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association
group insurance
Group insurance extended to the members of a trade, professional,
or other association.
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assumption
reinsurance
A reinsurance agreement by which one company permanently transfers
full responsibility for a block of policies to another company.
After the cession, the ceding company is no longer a party to
the insurance agreement.
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attained
age
The current age of the insured. The age of the insured at the
time the insured's policy was issued plus the number of years
elapsed since the policy was issued.
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attained
age conversion
The changing of a life insurance policy from one form of insurance
to another (such as from term life insurance to whole life insurance)
at a premium rate that is based on the age the insured person
has reached at the time the change takes place.
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Attending
Physician's Statement (APS)
A written statement from a physician who has treated, or is currently
treating, a proposed insured or an insured for one or more conditions.
The statement provides the insurance company with information
relevant to underwriting a risk or settling a claim.
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automatic
dividend option
For a particular life insurance policy, the dividend option that
applies in the event the policyowner does not choose an option.
See dividend options.
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automatic
nonforfeiture option
For a particular life insurance policy, a specified nonforfeiture
benefit that becomes effective automatically when a renewal premium
is not paid by the end of the grace period and the policyowner
has not elected another nonforfeiture option. See also nonforfeiture
options.
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automatic
premium loan (APL)
A life insurance nonforfeiture option that allows the insurer
to pay overdue premiums on a policy by establishing a loan against
the policy's cash value. See also nonforfeiture options.
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automatic
reinsurance treaty
A reinsurance agreement in which the reinsurer agrees, for a stipulated
type of risk, to accept each risk or a portion of each risk submitted
by the ceding company, up to a certain limit, provided the ceding
company insures up to its usual retention limit. In this agreement,
the ceding company assumes full underwriting responsibility for
all cases reinsured.
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average
indexed monthly earnings
In the United States, the figure on which social security disability,
retirement and other benefits are based. The figure is an average
of the monthly earnings on which a worker has paid social security
tax. The figure is indexed, that is, adjusted to compensate for
inflation.
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aviation
exclusion
A life insurance contract provision which specifies that the death
benefit is not payable if the insured dies as a result of certain
aviation activities.
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back-dating
Making the effective date of an insurance policy earlier than
the date of the application so that the premium rate will be lower.
State law usually limits back-dating to not more than six months.
Also called dating back.
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back-loaded
policy
A life insurance policy (usually a universal life insurance policy)
in which most of the expense charges occur when the policyowner
surrenders the policy or makes cash withdrawals from the policy.
Such charges are usually highest in the early policy years and
are often eliminated at the end of a certain number of years.
See also front-loaded policy and
universal life insurance.
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backloading
The practice of providing a higher accrual of pension benefits
during a participant's later years of employment. The practice
is designed to encourage and reward long service.
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band grading
The grouping of life insurance policies according to death benefit
amounts for the purpose of calculating loading.
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basic death
benefit
The death benefit according to the terms of the original, basic
contract of a life insurance policy. The basic death benefit does
not include the benefit for any supplementary riders, such as
an accidental death benefit (ADB) rider. For policies whose death
benefit remains constant, the basic death benefit is equivalent
to the face amount. Compare to death benefit and policy proceeds.
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basic mortality
table
A mortality table without a safety margin. Also called a basic
experience table. See also mortality table and safety margin.
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basic services
Under dental insurance, dental services, such as fillings, periodontics,
and oral surgery, which are often covered at 80 percent of their
reasonable and customary charges.
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basket
clause
(1) From an investment point of view, a provision that allows
insurance companies to invest a small percentage of their assets
generally without regard to statutory restrictions. (2) From an
accounting point of view, a clause which permits life and health
insurers to hold a specified amount of their assets as nonauthorized
assets, which are not restricted in the same way as authorized
assets.
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beneficiary
The person or other party designated to receive life insurance
policy proceeds. See also contingent beneficiary, irrevocable
beneficiary, primary beneficiary, and revocable beneficiary.
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beneficiary
declaration
In Canada, an insurance policy beneficiary designation that is
made in a separate written document after the insurance policy
has been issued.
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beneficiary
for value
In the common law jurisdictions of Canada, a person who belongs
to the class of beneficiaries composed of persons who were named
as life insurance policy beneficiaries in return for providing
valuable consideration to the insureds (U.S.: policyowners). The
1962 revision of the Uniform Life Insurance Act abolished this
class of beneficiaries.
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benefit
The amount of money paid when an insurance claim is approved.
Also called the policy benefit.
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benefit
of survivorship
Describes the fact that annuity payments will be made as long
as the designated recipient is alive at the time the payment is
due. This concept is used in the calculation of amounts due under
life insurance settlement options.
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benefit
schedule
Under a group insurance plan, a table or schedule which specifies
the amount of coverage provided for each class of insured. Insureds
are often classified with reference either to earnings or to rank
or position. Also known as schedule of benefits.
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best-earnings
plan
A pension plan which specifies that each participant's benefit
will be calculated according to the final-average formula.
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binding
premium receipt
A type of initial premium receipt that makes insurance coverage
effective immediately but only until the insurance company either
rejects the application or approves it and issues a policy. Compare
to conditional premium receipt.
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birthday
rule
A rule included in some coordination of benefits provisions that
specifies the manner in which benefits for dependent children
are to be coordinated between two insurance plans. According to
the birthday rule, benefits for dependent children will be paid
by the plan of the parent whose birthday falls earlier in the
year.
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blended
rates
Group mortality rates that are based partially on a group's own
experience and partially on manual rates. Blended rates are used
to determine the appropriate group insurance premium rates for
intermediate-size groups. See also experience rating and manual
rates.
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Blue Cross
plan
A hospital expense insurance plan offered by a regionally-operated
health care provider affiliated with a large national nonprofit
health care organization. This plan generally provides benefits
on a "service-type" basis.
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Blue Shield
plan
A physician expense insurance plan offered by a regionally-operated
health care provider affiliated with a large national nonprofit
health care organization. This plan generally provides benefits
on a "service-type" basis.
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branch
manager
The individual in charge of a field office of an insurance company
that uses the branch office distribution system. Also called a
general manager. See also branch office distribution system.
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branch
office distribution system
A common system for selling individual life insurance. Under this
system, the soliciting agents who work out of a branch office
are under contract to the insurance company, not to the branch
manager, and the agents receive commissions directly from the
insurance company. The branch office manager, supervisors, and
clerical personnel in the field office are employees of the insurance
company, and these employees are subject to the same types of
controls normally exercised by an employer. See also agency system,
branch manager, and general agency distribution system.
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break in
service
The length of time between the date an employee leaves a firm
and the date the employee resumes working for that firm. For pension
and employee benefit plan purposes in the United States, a plan
participant cannot be deprived of benefits which accumulate before
a break in service unless the break is longer than (1) five years
or (2) the amount of time that the participant has been employed
when the break commences, whichever is greater.
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bridging
supplement
In Canada, a supplemental pension provided to a pension plan participant
who retires before age 65. The bridging supplement is generally
used to integrate private pension plans with public pension plans.
If a pension plan participant retires before age 65, the plan
sponsor can provide a bridging supplement until the retiree begins
to receive payments from the public pension plans at age 65. The
combined benefit payment that the participant receives remains
level and is the same as the participant would have received had
he or she waited until reaching age 65 before beginning to receive
benefits. The sponsor is providing an amount in addition to the
basic pension payment. Also known as a bridging benefit. Compare
to the notched option.
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broker
(1) An insurance salesperson agent who sells insurance products
for more than one insurance company. (2) For a career agent, to
submit insurance applications to companies other than the agent's
own company.
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brokerage
distribution system
A distribution system that relies on commissioned agents, called
brokers, who sell the products of more than one insurance company.
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brokerage
manager
A salaried insurance company employee or an independent agent
whose responsibility is to appoint brokers on behalf of the company
and to encourage brokers to sell the products of a particular
insurance company.
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brokerage
shop
An agency operated by an independent general agent who is under
contract to a number of insurance companies. Also known as a brokerage
general agency.
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broker-dealer
A firm that provides information or advice to its customers regarding
the sale and/or purchase of securities and that serves as a financial
intermediary between buyers and sellers by manufacturing or acquiring
securities in order to market them to its customers.
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bundled
insurance product
An insurance product in which the mortality, investment, and expense
factors used to calculate premium rates and cash values are not
identified separately in the policy. Traditional whole life insurance
is an example of a bundled insurance product. See also unbundled
insurance product.
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business-continuation
insurance
A type of business insurance designed to provide funds so the
remaining partners in a business, or the remaining stockholders
in a closely-held corporation, can buy the business interest of
a deceased or disabled partner or stockholder. See also partnership
insurance and stock repurchase insurance.
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business
insurance
Insurance that is intended to serve the insurance needs of a business
rather than the needs of an individual.
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Buyer's
Guide
In the United States, a publication that many states require insurance
companies to give to an applicant for life insurance. The Buyer's
Guide helps the applicant make an informed choice among policies.
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cafeteria
plan
An employee benefit plan which gives each employee several choices
as to the types and/or amounts of group benefits. Also known as
a flexible benefit plan.
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Canada
Pension Plan (CPP)
A plan that primarily provides retirement income and long-term
disability income benefits to residents of Canadian provinces
other than Quebec.
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Canadian
Council of Insurance Regulators (CCIR)
A Canadian organization of provincial insurance regulators who
meet regularly to discuss insurance issues and to develop model
insurance legislation that it encourages provincial legislatures
to adopt. Similar to the National Association of Insurance Commissioners
in the United States.
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Canadian
Life and Health Insurance Association (CLHIA)
An association of most of the life and health insurance companies
in Canada which conducts research on insurance issues and promotes
the best interests of the insurance industry. The CLHIA is the
primary source of information about the life and health insurance
industry in Canada.
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Canadian
Life and Health Insurance Compensation Corporation (CompCorp)
In Canada, a federally incorporated, nonprofit company established
by the Canadian Life and Health Insurance Association (CLHIA)
in order to protect consumers against loss of benefits in the
event a life or health insurance company becomes insolvent.
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Canadian
method
A method prescribed in Canada for calculating modified net premiums
and reserves.
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cancellable
policy
An individual health insurance policy that can be terminated at
any time by the insurer. See also conditionally renewable policy,
guaranteed renewable policy, noncancellable and guaranteed renewable
policy, noncancellable policy, and optionally renewable policy.
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capacity
The largest amount of insurance an insurer or a reinsurer is willing
or able to underwrite. The term can refer to an insurer's capacity
on one individual or to the insurer's capacity for all its business.
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capitation
A method of paying medical providers through a prepaid, flat monthly
fee for each covered person. The payment is independent of the
number of services received or the costs incurred by a provider
in furnishing those services.
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capitation
basis
A compensation plan used in some health maintenance organizations
(HMOs) in which a physician is paid a flat amount per year per
subscriber who has elected to use that physician. For that amount,
the physician must treat the subscriber as often as necessary
during that year. See also fee schedule basis.
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captive
agents
See exclusive agents.
captive
insurance company
An insurance company, formed and controlled by a separate company,
whose purpose is to provide insurance to the controlling company.
Companies which form captive insurance companies include all types
of companies which extend credit to customers, including banks
and retailers. See also agent-owned reinsurance company (AORC).
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career
agent
A full-time commissioned salesperson who works out of an insurance
company's field office, holds an agent contract with that company,
and sends all, or almost all, of his or her business to that company.
A career agent may occasionally broker business with other companies.
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career
average (career earnings) benefit formula
A type of defined benefit formula in which the retirement benefit
amount is derived on the basis of a participant's compensation
during the entire period of participation in the plan. See also
defined benefit formula. Contrast with final average benefit formula.
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carry-over
provision
A provision found in most medical expense policies stating that
expenses incurred during the last three months of a benefit period
that are used to satisfy the current benefit period's deductible
may be used to satisfy any or all of the following benefit period's
deductible.
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case management
A cost-containment program designed to identify alternate, less
costly methods of treatment for seriously ill patients without
sacrificing the quality of care a patient receives. Also known
as catastrophic claim management, large claim management, or medical
case management.
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cash-balance
pension plan
A type of defined benefit plan in which each participant has an
account which is credited with amounts reflecting the employer's
contributions and amounts reflecting investment interest. The
balance in the account indicates the participant's accrued benefit.
Upon retirement or withdrawal, the participant may receive the
full account balance in a lump sum, provided that the benefits
are fully vested, or may use the account balance to purchase an
annuity.
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Cash or
Deferred Arrangement (CODA)
See Section 401(k) plan.
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cash payment
option
A life insurance policy dividend option under which policy dividends
are paid to the policyowner in cash.
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cash premium
accounting system
A premium accounting system used for industrial insurance. Under
this system, the agent informs the home office of the amount collected
on each policy. The home office then updates the policy records
to reflect these collections and prepares new route collection
records. Contrast with advance and arrears system.
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cash refund
option
A form of the life income option with refund which specifies that
any proceeds remaining when the beneficiary dies will be paid
in a lump sum to the contingent payee. Contrast with the installment
refund option.
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cash surrender
value
In a life insurance policy, the amount of money, adjusted for
factors such as policy loans or late premiums, that the policyowner
will receive if the policyowner cancels the coverage and surrenders
the policy to the insurance company. Also called the net cash
value. Compare to cash value.
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cash surrender
value option
A life insurance policy nonforfeiture option which specifies that
a policyowner who discontinues premium payments can elect to surrender
the policy and receive the policy's cash surrender value.
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cash value
In a life insurance policy, the amount of money, before adjustment
for factors such as policy loans or late premiums, that the policyowner
will receive if the policyowner allows the policy to lapse or
cancels the coverage and surrenders the policy to the insurance
company. Cash values are a feature of most types of permanent
life insurance, such as whole life and universal life. Compare
to cash surrender value. Also called inside build-up and policyowner's
equity.
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catastrophic
claim management
See case management.
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causal
relation requirements
Proof required by statute in Kansas, Missouri, Rhode Island, and
Puerto Rico to show that the facts misrepresented in an application
for insurance were related to the loss insured against.
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ceding
company
In a reinsurance transaction, the insurer that purchases reinsurance
to cover all or part of those risks that it does not wish to retain
in full. Also called the direct insurer, direct writer, or direct-writing
company.
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certain
payment
A payment that will definitely be made under any circumstances,
its payment not being contingent upon any predesignated condition.
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certificate
of assumption
In assumption reinsurance, a certificate sent to each policyholder
whose policy has been ceded to give the policyowner (1) notice
of the assumption and (2) information concerning the new insurer.
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certificate
of authority
(1) A document created by an insurer detailing the authority granted
to an agent or group of agents to act on behalf of the insurer.
(2) In the United States, a certificate issued by a state's insurance
department authorizing an insurer to issue certain types of insurance
within the state.
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certificate
of indebtedness
A certificate issued by an insurer to the beneficiary of a life
insurance policy that specifies a guaranteed minimum interest
rate and the frequency with which the insurer will make interest
payments under the interest settlement option.
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certificate
of insurance
A document given to each person insured by a group insurance plan.
This document shows the type and amount of coverage to which the
group member is entitled and the beneficiary of the coverage.
The certificate may also contain a summary of the contract terms
as they affect individual group members. See also master contract.
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cession
(1) In reinsurance, the act of ceding. (2) In reinsurance, a parcel
or unit of insurance that a company cedes to a reinsurer.
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change
of condition provision
An insurance provision stipulating that, for a policy to become
effective, all conditions described in the application must still
be true at the time of delivery.
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change of occupation provision
An individual health insurance policy provision that grants the
insurer the right to adjust a policy's premium rate or benefits
when the insured changes jobs or careers.
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CICA
The CICA, together with the provincial and territorial institutes
of chartered accountants, represents a membership of 60,000 professional
accountants in Canada and Bermuda. The CICA sets accounting and
auditing standards for business, not-for-profit organizations
and government. It issues guidance on control and governance,
publishes professional literature, develops continuing education
programs and represents the CA profession nationally and internationally.
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claim
A request for payment under the terms of an insurance policy.
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claim administration
department
The department in a life and health insurance company responsible
for processing claims. In this department, claim examiners review
claims presented by policyowners or beneficiaries, verify the
validity of claims, and authorize the payment of benefits to the
proper person.
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claimant
The person or party making a formal request for payment of benefits
due under the terms of an insurance contract.
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claim examiner
An employee of an insurance company whose responsibilities include
investigating claims, approving the claims that are valid, and
denying those that are invalid or fraudulent.
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claim frequency
rate
In health insurance calculations, the claim frequency rate is
the expected percentage of insured people who will file claims
and the number of claims they will file during a given period.
The claim frequency rate is used to calculate average claim costs,
which are used to calculate premium rates.
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claim investigation
The process of obtaining necessary claim information in order
to decide whether or not to pay a claim.
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claim reserve
A claim department's estimate of the amount of money needed to
pay a claim. The estimate is made with the help of information
that the claim department gathers in the course of handling the
claim. This information may involve, for example, the extent to
which the claim is covered by the policy, the effect of previously
paid claims on the amount of coverage available to pay a current
claim, and the effect of any applicable reinsurance coverage on
the claim.
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class beneficiary
designation
A beneficiary designation that names several people as a group
-- for example, "children of the insured" -- rather than naming
each person individually.
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clean-up
fund
A lump-sum life insurance death benefit designed to pay the insured's
outstanding debts and final expenses.
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CLHIA Guidelines
Recommendations to insurance companies adopted by the Canadian
Life and Health Insurance Association (CLHIA). Insurers are expected
to abide by these guidelines as a condition of membership in the
CLHIA.
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closed
contract
An insurance contract in which the terms of the insurance contract
and the application constitute the entire agreement between the
policyowner and the insurer. Commercial insurance companies use
closed contracts. See also open contract.
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closing
The process of securing a purchase commitment from a prospect
by requesting and obtaining the prospect's agreement to submit
an application for the coverage recommended in a sales proposal.
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COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1985, commonly
known as COBRA, requires group health plans with 20 or more employees
to offer continued health coverage for you and your dependents
for 18 months after you leave your job. Longer durations of continuance
are available under certain circumstances. If you opt to continue
coverage, you must pay the entire premium, plus a two percent
administration charge.
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coinsurance
The amount you are required to pay for medical care in a fee-for-service
plan or preferred provider organization (PPO) after you have met
your deductible. The coinsurance rate is usually expressed as
a percentage of charges. For example, if the insurance company
pays 80 percent of the claim, you pay 20 percent.
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coinsurance
provision
A stipulation found in most health insurance policies that requires
an insured to pay a stated percentage, in excess of the deductible,
of all eligible medical expenses.
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COLA
See cost-of-living adjustment (COLA).
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collateral
assignment
A transfer of some ownership rights in a contract from one party
to another, generally for a temporary period. Insurance policies
are often assigned as collateral for a loan, in which case all
transferred rights revert to the assignor when the loan is repaid.
See also assignment.
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combination
company
A life and health insurance company that sells both industrial
and ordinary insurance products.
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combination
clause
A clause in a disability income contract that specifies a point
at which the definition of total disability will no longer be
based on an insured's inability to perform his or her "own occupation"
but on the insured's inability to perform "any occupation."
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combination
dental plan
A dental plan which contains features of both scheduled and nonscheduled
plans. Typically, combination plans cover preventive and diagnostic
procedures on a nonscheduled basis and other services on a scheduled
basis. See also nonscheduled dental plan and scheduled dental
plan.
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combination
plan
A pension plan which employs an approach to funding wherein part
of the funding is allocated and part is unallocated. The allocated
part of the employer's contribution is used to purchase annuities
or life insurance contracts with cash values. The unallocated
part is placed in a side fund, also called a conversion fund.
See also allocated funding and unallocated funding.
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commission
The amount of money paid to an insurance agent for selling an
insurance policy. A commission is almost always calculated as
a percentage of the premium.
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Commissioners
Method
A method prescribed in the United States for calculating modified
net premiums and reserves for life insurance policies.
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common
accident provision
(1) A provision of many medical expense insurance contracts which
specifies that, if two or more members of the same family are
injured in the same accident, their combined medical expenses
will only be subject to one deductible. (2) A provision found
in many voluntary group accidental death and dismemberment plans
which specifies that the amount payable by the insurance company
is limited to a stipulated maximum for all employees killed or
injured in a single accident.
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common
disaster clause
A life insurance policy provision which states that the primary
beneficiary must survive the insured by a specified period, such
as 60 or 90 days, in order to receive the policy proceeds. Otherwise,
the policy proceeds will be paid as though the primary beneficiary
had died before the insured.
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community-rating
Applying the same premium rate structure to certain group insurance
subscribers, regardless of their past or potential loss experience.
See also pooling.
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commuted
value
In Canada, the present value of the pension benefits expected
to be paid to a retiree from the date of retirement until death.
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company
retention method
A method of comparing the costs of various life insurance policies
wherein the present value of premiums, cash values, and dividends
is calculated by weighting each item each year by the probability
that it will be paid. See also cost comparison methods.
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comprehensive
major medical insurance
A form of health insurance coverage that combines the features
and benefits of a hospital-surgical expense policy and the features
and benefits of a major medical policy.
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concurrent
review
A component of a utilization review program that monitors an insured's
care while the insured is hospitalized and encourages the dismissal
of an insured from the hospital as soon as the insured's medical
condition no longer warrants continued in-patient care.
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conditionally
renewable policy
A health insurance policy that grants an insurer the right to
refuse to renew the policy for reasons specified in the policy
at the end of a premium payment period. See also cancellable policy,
guaranteed renewable policy, noncancellable and guaranteed renewable
policy, noncancellable policy, and optionally renewable policy.
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conditional
premium receipt
A type of premium receipt given when the applicant pays the initial
premium and under which life insurance will become effective before
a policy is issued only if the proposed insured is found to be
insurable. Also called a conditional receipt. Compare to binding
premium receipt. See also approval type temporary insurance agreement
and insurability type temporary insurance agreement.
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confirmation
certificate
A certificate issued to the beneficiary of a life insurance policy
that outlines the amount of life insurance proceeds in a retained
asset account, the account number, and the current interest rate.
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conservation
An agent's or an insurer's efforts to prevent a policy from lapsing.
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Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA)
In the United States, a statute which requires that employers
sponsoring group health plans offer continuation of coverage under
the group plan to employees and their spouses and dependent children
who have lost coverage because of the occurrence of a "qualifying
event." Qualifying events include reduction in work hours, many
types of termination of employment, death, and divorce.
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constructive
delivery
Legally equivalent to physical delivery of a policy. Constructive
delivery occurs (a) when an insurer parts with control of the
policy with the intention that the insurer will be unconditionally
bound by the policy as a completed instrument or (b) when the
policy is physically delivered to an agent of the applicant.
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consumer
report
As defined by the Fair Credit Reporting Act, a consumer reporting
agency's communication of any information pertaining to an individual
consumer's creditworthiness, credit standing, credit capacity,
general reputation, or personal characteristics.
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consumer
reporting agency
Any person or organization that regularly prepares consumer reports
and furnishes them, either for profit or on a cooperative, nonprofit
basis, to other persons or organizations. Also called a credit
reporting agency. See also Fair Credit Reporting Act (FCRA).
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contestable
period
The period of time (usually two years) during which an insurer
may challenge the validity of a life insurance policy. See also
incontestable clause.
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contingencies
Events that are possible but that may or may not happen. Insurers
base their premium rates and their willingness to accept risks
partly on the probability that certain contingencies will or will
not occur.
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contingency
reserve
A voluntary reserve established by an insurance company to help
pay any unusual and unexpectedly large claim amounts. See also
special surplus funds.
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contingent
beneficiary
The party designated to receive life insurance policy proceeds
if the primary beneficiary should die before the person whose
life is insured. Also called the secondary beneficiary or the
successor beneficiary.
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contingent
payee
The party who will receive any life insurance policy proceeds
that are still payable under a settlement option at the time of
the primary payee's death. Unlike the contingent beneficiary,
the contingent payee's rights do not end when the insured dies.
Also called the successor payee.
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contingent
payment
A payment that will be made only if some predesignated condition
is met, such as the recipient being alive.
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continuance
tables
Tables containing morbidity statistics that indicate the distribution
of claims according to the duration of the illness or amount of
expense involved in the claims.
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continuous-premium
whole life insurance
A type of whole life insurance in which premiums are payable until
the death of the insured. Also called straight life insurance.
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contract
of adhesion
A legally binding agreement that is prepared by one party and
that must be accepted or rejected as a whole by the other party,
without any bargaining between the parties to the agreement. Insurance
contracts are contracts of adhesion.
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contract
of indemnity
A type of contract in which the amount of the benefit to be paid
is based on the actual amount of financial loss as determined
at the time of loss. For example, many hospital expense insurance
contracts are contracts of indemnity. See also valued contract.
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contributed
surplus
On a Canadian life insurance company's balance sheet, the amount
in excess of par value paid in by stockholders minus the amount
of dividends paid to stockholders.
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contribution
limit
The maximum annual addition permitted by law to be made to a participant's
account in a defined contribution pension plan.
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death benefit
The amount of money paid or due to be paid when a person insured
under a life insurance policy dies. This amount does not include
adjustments for outstanding policy loans, dividends, paid-up additions,
or late premium payments. See also basic death benefit and policy
proceeds.
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death claim
A request for payment under the terms of a life insurance policy.
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debit
See territory.
debits
In the numerical rating system, debits represent underwriting
factors that have an unfavorable effect on an individual's mortality
rating. Debits are assigned positive values. See also credits
and numerical rating system.
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debtor-creditor
groups
A group composed of lending institutions -- banks, credit unions,
savings and loan associations, finance companies, retail merchants,
and credit card companies -- and their debtors. See also group
creditor life insurance.
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decreasing
term insurance
A type of term life insurance in which the amount of coverage
decreases during the term of coverage.
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decrement
A reduction in the number of participants in a pension plan caused
by factors such as retirement, disability, death, or termination.
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deductible
The amount of money you must pay up front each year to cover your
medical care expenses before your insurance policy starts paying.
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deferral
date
A date some time after the first anniversary of a group insurance
policy to which an insurance company defers the payment of the
policy's first renewal premium. An insurance company might defer
this payment so that it could use the full first year's experience
to help calculate the new premium.
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deferred
annuity
(1) A series of payments in which the first payment is postponed
(deferred) for one or more periods. (2) An annuity contract under
which premiums are accumulated at interest but the annuity payment
period is postponed (deferred) for one or more periods. See also
deferred life annuity and group deferred annuity.
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deferred
compensation plan
A plan established by an employer to provide benefits to an employee
at a later date, such as after the employee's retirement.
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deferred
life annuity
A deferred annuity that provides a series of payments, each of
which is made only if a designated person is alive.
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deferred
premium arrangement
In group insurance, an agreement between an insurer and a policyholder
to lengthen a group insurance policy's grace period, on a permanent
basis, usually by 30, 60, or 90 days. This arrangement allows
the policyholder to use the deferred premium amounts for the length
of time by which the grace period is extended. The arrangement
is usually only granted to companies with excellent credit ratings.
Also called a premium-delay arrangement.
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deferred
premiums
Premiums that are due after a policy's statement date but before
the next policy anniversary.
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Deferred
Profit Sharing Plan (DPSP)
In Canada, a type of profit-sharing plan in which employer contributions,
up to certain limits, are tax deductible for the employer and
tax deferred for the employee, and in which the employee can withdraw
the benefit before retirement. The ways that plan funds can be
invested are restricted. See also profit-sharing plan.
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defined
benefit formula
A formula used to determine the periodic payment amounts that
each participant in a defined benefit pension plan will receive
at retirement. The benefit amount is often related to number of
years of participation in the plan.
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defined
benefit pension plan
A pension plan that specifies the benefits that the plan promises
to pay to a participant upon retirement, with the benefits determined
according to a specified formula. Contrast with defined contribution
pension plan.
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defined
contribution formula
A formula that describes the amount of money that will be deposited
into a pension plan each year on behalf of each plan participant.
Usually, the contribution is a specified percentage of the participant's
compensation.
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defined
contribution pension plan
A pension plan that specifies the amount of annual contributions
that the plan sponsor will make on behalf of a plan participant.
A defined contribution plan does not guarantee a specific amount
of retirement benefits. A participant's benefits at retirement
are based on the amount that has been contributed to the participant's
account, plus investment earnings. Contrast with defined benefit
pension plan.
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demutualization
The process of converting a stock insurance company to a mutual
insurance company.
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dental
maintenance organization
An organization like an HMO which provides only dental care.
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dentist-consultant
A licensed dentist who understands the underwriting intent of
dental plan language as well as the accepted standards of dental
practice, and who advises insurers as to the appropriateness of
dental treatment.
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dependent
life insurance
Group life insurance made available to group members, usually
on an optional and contributory basis, to cover the spouse, children,
or other dependents of the group member. It is usually sold in
small amounts which are intended to pay funeral expenses.
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deposit
administration contract
A funding vehicle for a pension plan in which the plan sponsor
places plan assets in an insurance company's general account.
When a plan participant retires, the insurer withdraws sufficient
funds from the general account to buy an immediate annuity for
the plan participant. A deposit administration contract usually
protects the plan sponsor against investment loss and guarantees
minimum investment returns. See also immediate annuity and immediate
participation guarantee (IPG) contract.
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deposit
term insurance
A type of level term insurance that requires a substantially larger
premium payment in the first year than the amount of level annual
premiums payable in subsequent years.
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determination
letter
In the United States, a ruling by the Internal Revenue Service
(IRS) as to whether the design of a pension plan satisfies the
criteria necessary for the plan to be a qualified plan.
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deviated
rate
In group creditor insurance in the United States, a premium rate
for a contributory plan which is higher than the prima facie rate
and based on the group's actual claims experience. Insurers can
charge a deviated rate only after the prima facie rate has been
in effect for a certain period of time and only after being granted
permission by the state insurance commissioner. Contrast with
prima facie rate.
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diagnostic
related groups (DRGs)
In the United States, a prospective payment method used in the
Medicare Program, in which payment is not based on the number
and kinds of medical services that a patient receives, but instead
is based on the diagnosis of each patient.
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direct
response distribution system
In insurance, a distribution system that relies on advertisements,
telephone solicitations, and mailings to generate sales. No agents
visit customers to induce sales.
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direct
response marketing
A method of selling insurance products directly to the consumer,
usually through direct mail, advertising in print and broadcast
media, or by telephone solicitation, without the use of insurance
agents.
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disability
Inability to work due to an injury or sickness. See also partial
disability, presumptive disability, and total disability.
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disability
benefits
Benefits that are payable periodically while an insured continues
to be disabled. "Being disabled" is generally defined in terms
of inability to work. See also total disability.
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disability
buy-out insurance
Insurance that provides cash funds to a business or professional
partnership so that the business interests of a totally disabled
partner or stockholder may be purchased if the disability is long-term
or permanent.
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disability
income insurance
A type of health insurance designed to compensate insured people
for a portion of the income they lose because of a disabling injury
or illness. Generally, benefits for disability income insurance
are provided for the disabled person in the form of monthly payments.
Sometimes called loss of time insurance. See also long-term disability
income insurance and short-term disability income insurance.
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disability
table
(1) A tabulation of the probabilities of becoming disabled at
each age, plus certain related figures. (2) A tabulation of the
number of persons who are still disabled at each age and the duration
of disability, plus certain related figures.
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disabled
life annuity
A series of payments, each of which is contingent on a person
being alive and still disabled.
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discharge
provision
Part of a small estates statute which releases an insurance company
from liability under an insurance contract if it pays the proceeds
to the deceased insured's estate. See small estates statutes.
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Discontinuity
Index
A test required by the NAIC Model Life Insurance Disclosure Regulation
and designed to disclose instances in which policy illustrations
have been manipulated so that they present an unrealistic progression
of premiums, dividends, and benefits.
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disintermediation
The process of removing money from a financial intermediary in
order to earn a higher yield somewhere else, usually with another
financial intermediary. Historically, disintermediation, through
policy loans or surrendered policies, has been a major problem
for life and health insurers during periods of economic depression
and high inflation.
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distress
termination
In pension and employee-benefit plans, the curtailment of a plan
which does not have sufficient funds to cover all the benefits
to which the plan's participants are entitled. Contrast to standard
plan termination. See also involuntary plan termination and voluntary
plan termination.
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distribution
expenses
Expenses involved in making insurance products available to the
general public. These expenses include agent compensation, group
sales representatives' salaries, and postal, printing, and telecommunications
expenses for those companies that use direct response marketing.
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distribution
system
In an insurance company, the network of organizations and individuals
that performs all the marketing activities required to convey
a product from an insurer to its customers.
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dividend
(1) A refund of excess premium paid to the owner of an individual
participating life insurance policy. Such a dividend is paid out
of an insurer's divisible surplus. Also called a policy dividend
or a policyowner dividend. See also divisible surplus. (2) The
portion of a group insurance premium that is returned to a group
policyholder whose claims experience is better than had been expected
when the premium was calculated. Also called experience rating
refund, experience refund, and retroactive rate reduction. (3)
A periodic payment paid by a business to a stockholder. Dividends
paid in cash are called cash dividends. Dividends paid in the
form of additional shares of stock are called stock dividends.
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dividend
accumulations
Amounts that result when a policyowner decides to leave the policy
dividends owed to him or her on deposit with the insurer. Also
called dividend credits.
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dividend
expenses
When an insurer calculates policyowner dividends, dividend expenses
represent the amount of money that it costs the insurer to maintain
each policy in force for the current year.
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dividend
interest rate
The interest rate that represents the actual rate being earned
on an insurer's present investments. The dividend interest rate
is used to calculate policyowner dividends.
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dividend
options
Several alternatives that participating policyowners can choose
from to indicate the manner in which they want to receive their
share of the insurance company's divisible surplus. See accumulation
at interest option, additional term insurance option, automatic
dividend option, cash payment option, dividend accumulations,
enhancement type policy, paid-up additions, and premium reduction
option.
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dividend
rate of mortality
The rate of mortality (for a given age) that an insurer chooses
to use in calculating policyowner dividends. The dividend rate
of mortality is the mortality rate currently experienced by the
insurer on the policies it has sold.
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divisible
surplus
The portion of an insurance company's earnings that is available
for distribution to the owners of the company's participating
policies. See also surplus.
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doctrine
of reasonable expectations
A doctrine applied by some courts under which the reasonable expectations
of policyowners and beneficiaries will be honored, even though
the language of the policy does not literally support these expectations.
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domestic
corporation
From the point of view of a particular state in the United States,
a company incorporated under the laws of that state. Compare to
alien corporation and foreign corporation.
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double
indemnity
Death benefit coverage that pays an additional benefit equal to
the basic death benefit of the policy if the insured's death is
accidental. See also accidental death benefit (ADB) rider.
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dread disease
policy
See limited coverage policy.
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drinking
criticism
An underwriting term for evidence of alcohol abuse or alcoholism.
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dual-choice
provision
In the United States, part of the Health Maintenance Organization
Act of 1973 which requires employers that meet certain specifications
to offer health insurance through a federally qualified HMO as
an alternative to a traditional health insurance plan.
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dual registration
The licensing of registered representatives with more than one
broker-dealer.
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duplicate
coverage inquiry (DCI) form
In the United States, a form filled out by a health insurance
company claim office and sent to another company in order to ascertain
whether an accident or injury for which the first company has
received a claim is also insured by the second company.
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early retirement
age
An age specified in a pension plan that is earlier than the plan's
normal retirement age but at which a plan participant can still
receive an immediate pension benefit. The benefit received at
early retirement is usually actuarially reduced from the amount
that would have been received had retirement occurred at the normal
retirement age. See also late retirement age and normal retirement
age.
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election
period
A 60-day period following notification of an insured's eligibility
for COBRA continuation coverage, during which the individual can
accept or decline the coverage.
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elective
contributions or elective deferrals
In the United States, contributions to an employee's Section 401(k)
plan (cash or deferred arrangement) that are made by the employer
on the employee's behalf. The contributions are made using before-tax
dollars obtained through a voluntary reduction of the employee's
salary. The contributions are tax-deferred to the employee. See
also matching contributions and nonelective contributions.
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eligibility
period
In contributory group insurance plans, the period of time, usually
31 days, during which a new employee may apply for group insurance
coverage.
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eligibility
requirements
The conditions a person must meet in order to be a participant
in a group life insurance, group health insurance, or retirement
plan.
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elimination
period
See waiting period.
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employee
contribution
See percentage contribution.
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Employee
Retirement Income Security Act of 1974 (ERISA)
A United States federal law establishing (a) the rights of pension
plan participants, (b) standards for the investment of pension
plan assets, and (c) requirements for the disclosure of plan provisions
and funding. ERISA also established the Pension Benefit Guaranty
Corporation (PBGC).
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employee's
cost basis
In the United States, an amount that is subtracted from the total
amount of a distribution to a pension plan participant, in order
to determine the portion of the distribution that is subject to
federal taxation. The cost basis is the amount on which an employee
has already been taxed. It includes the amount of the nondeductible
contributions made to the plan by the participant, any cost of
plan-provided life insurance that was reported as taxable income
by the participant, and other factors, including the amount of
any employer contributions previously taxed as income to the participant.
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Employees
Profit Sharing Plan (EPSP)
In Canada, a type of profit sharing plan in which the employer
deposits funds into a trust account and may deduct the deposited
amount for tax purposes. Employees are generally taxed on contributions
on their behalf in the year the contributions are made and on
interest earnings when they are earned, but are not taxed when
they leave the plan and receive the benefits. There are few limitations
on the size of the contributions employers may make or on the
ways that plan funds may be invested.
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employee
stock ownership plan (ESOP)
Generally, any qualified employee-benefit plan which invests some
or all plan assets in employer stock. In the United States, ERISA
further defines an ESOP as either a qualified stock bonus plan
or a combination qualified stock bonus plan and defined contribution
pension plan designed to invest primarily in employer securities.
The employer's contributions are tax deductible for the employer
and tax deferred for the employee.
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endorsement
See rider.
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endorsement
method
A method of changing the beneficiary of a life insurance policy.
The change may be made in one of two ways: (a) The policyowner
returns the policy to the insurance company, and the insurer attaches
the endorsement with the name of the new beneficiary to the policy,
or (b) the policyowner does not send the policy to the insurer
but only requests the change by letter or telephone, and the insurer
sends an endorsement with the change to the policyowner. Contrast
with recording method.
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endowment
insurance
A type of life insurance that provides a benefit (a) if death
occurs during a specified number of years or (b) if, at the end
of the specified number of years, the insured is alive.
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enhancement
type policy
A life insurance policy in which part of each dividend provides
paid-up additions, while the other part provides one-year term
insurance to produce a predetermined total death benefit.
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enrolled
actuary
In the United States, a pension actuary who meets the standards
of and is enrolled by the federal agency known as the Joint Board
for the Enrollment of Actuaries.
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entire
contract provision
A life insurance policy provision which states that the policy
itself, along with a copy of the application for insurance, if
attached, constitutes the entire agreement between the insurer
and the policyowner.
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equitable
assignment
An assignment that does not meet the requirements of a legal assignment
but which will be enforced in an equitable action if fairness
so requires.
equity-based
insurance product
A life insurance or annuity product in which the cash value and
benefit level fluctuate according to the performance of a portfolio
of equity investments. The owners of this type of insurance product
accept the risk of sharing in the insurer's investment gains and
losses. Equity investments are investments by virtue of which
investors gain part ownership in a corporation. The primary type
of equity investment is corporate stock. See also variable annuity,
variable life insurance, and variable universal life insurance.
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equity
pension
A pension which provides benefit amounts that, at least in part,
vary in accordance with the investment results of a portfolio
of common stocks and other investment vehicles. The equity portion
of the pension benefit is meant to provide retirees with benefits
that increase as inflation rises.
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equivalent
level annual dividend (ELAD)
One amount presented to consumers as part of the interest-adjusted
method of comparing the costs of life insurance policies. The
equivalent level annual dividend is meant to represent the part
of the interest-adjusted payment and the cost that is, in effect,
not guaranteed by the insurer, because dividends will change in
the future as the insurer's experience changes. This amount gives
the buyer an indication of the extent to which these nonguaranteed
amounts affect the interest-adjusted payment and the cost of a
policy.
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equivalent
single payment
One payment that can replace several other payments, because it
equals the value of the other payments.
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equivocal
suicide
An apparent suicide in which there is doubt about whether the
deceased intended to die as a result of an apparently self-destructive
act.
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ERISA
See Employee Retirement Income Security Act of 1974 (ERISA).
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error and
omissions (E&O) insurance
Insurance designed to cover claims that result from the negligent
acts or mistakes of an agent, including (1) his or her vicarious
liability stemming from negligent acts or (2) mistakes committed
by individuals for whom the agent is legally liable.
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ESOP
See employee stock ownership plan (ESOP).
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estate
planning
An insurance program designed not only to provide funds for the
prospect's dependents upon the death of the prospect, but also
to conserve, as much as possible, the personal assets that the
prospect wants to bequeath to heirs. Estate planning usually involves
accountants, lawyers, and the trust officers of banks, as well
as insurance agents.
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evidence
of insurability
Proof that a person is an insurable risk.
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excess
interest
The amount of interest above the guaranteed amount, that an insurance
company pays on a settlement option when interest rates are high.
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exchange
program
A program that allows a proposed insured who is replacing a policy
to obtain the new policy on the basis of little or no evidence
of insurability if his or her insurability has recently been established
by the company that issued the original policy.
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exclusion
rider
See impairment rider.
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exclusions
Specific conditions or circumstances for which the policy will
not provide benefits.
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exclusive
agents
Career agents who are under contract with one insurance company
only and who are not permitted to sell the products of other insurers.
Also known as captive agents.
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exclusive
territory
Under the general agency distribution system, a territory in which
no individual other than the general agent is permitted to offer
the insurer's products. Compare to nonexclusive territory and
overlapping territory.
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exculpatory
statute
Legislation in community-property states that allows an insurer
to pay the proceeds of a life insurance policy in accordance with
the terms of that policy without fear of double liability.
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exoneration
statutes
Statutes that excuse the insurer from liability if a party claims
policy proceeds which the insurer has already paid to a third
party in good faith and without knowledge of any conflicting claim.
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experience
rating
The process of using a group's own premium and claims experience
to calculate premium rates. If the claims experience for the previous
year was favorable, the insurer considers reducing the premium
rates for the coming year. If the experience was unfavorable,
the insurer attempts to discover the reason and may propose higher
premium rates for the next year. See also blended rates and manual
rates.
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experience
refund
(1) The portion of a group insurance premium that is returned
to a group policyholder whose claims experience is better than
had been expected when the premium was calculated. Also called
a dividend, an experience rating refund, and a retroactive rate
reduction. See also dividend. (2) The portion of a reinsurance
premium that is returned to the ceding company when claims experience
is better than had been expected when the premium was calculated.
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experimental
underwriting
The practice of cautiously accepting specific types of risk that
are considered uninsurable according to the insurer's normal underwriting
guidelines.
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express
authority
The authority that a principal explicitly confers on an agent.
See agent and principal. Compare to apparent authority and implied
authority.
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extended
spouse's allowance
In Canada, an Old Age Security (OAS) benefit payable to a person
who has been receiving a spouse's allowance and whose spouse dies.
The benefit is payable until the recipient reaches age 65 or remarries.
See also spouse's allowance.
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extended
term insurance option
A nonforfeiture option in which the cash value of a policy is
applied as a net single premium to purchase paid-up term insurance.
The amount of term insurance is equal to the death benefit of
the policy being surrendered less any outstanding policy loans.
The insured maintains the same amount of coverage but usually
for a shorter period of time than the original coverage. See also
nonforfeiture options.
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extra-percentage
tables method
A commonly used plan for rating substandard risks. Under this
method, each substandard class is charged a premium rate that
is a certain percentage above the standard premium rate. Contrast
with flat extra premium method.
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face amount
In a life insurance policy whose benefit is not variable, the
amount stated as payable at the death of the insured or (in the
case of an annuity) at the maturity of the contract. It is generally
shown on the first page of the policy. Also called the face value.
See also basic death benefit, death benefit, and policy proceeds.
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face page
The first page of an insurance policy. The face page normally
includes the insured's name and age, the name of the policyowner
(if different from the insured's name), the amount of premiums,
the policy number, the date on which the policy was issued, and
the signatures of the insurance company's president and secretary.
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facility-of-payment
clause
A life insurance policy provision that permits an insurer to pay
all or part of the policy proceeds either to a blood relative
of the insured or to anyone who has a valid claim to those proceeds.
The facility-of-payment clause enables the insurer to pay benefits
in a timely manner when such benefits cannot be made to the beneficiary
identified in the insurance contract.
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factor
table
A table used by insurance underwriters to determine an applicant's
net worth by specifying what an applicant's annual income should
be multiplied by to arrive at the maximum allowable amount of
insurance.
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Fair Credit
Reporting Act (FCRA)
A United States federal law designed to help ensure that consumer
reporting agencies act fairly, impartially, and with respect for
the consumer's right to privacy when preparing consumer reports
on individuals. See also consumer reporting agency.
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family
benefit
A life insurance policy rider that provides term insurance coverage
on the insured's spouse and children.
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family
deductible
A single deductible which, when satisfied, relieves a family of
the burden of satisfying a deductible for each individual family
member.
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family
income insurance
A specialized individual policy that commonly combines whole life
insurance with decreasing term insurance. The whole life insurance
portion of the policy is usually paid as a lump sum when the insured
dies. The decreasing term insurance portion of the policy provides
an income for a predetermined period to help support the insured's
family.
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family
insurance policy
A life insurance policy that covers all the members of a family
under one contract.
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FASB Statement
No. 35
Issued in the United States by the Financial Accounting Standards
Board (FASB) in 1985, Statement 35 contains rules by which to
measure and report a defined benefit pension plan's assets and
liabilities in accounting reports that are issued by the pension
plan itself. The Statement is titled "Accounting and Reporting
by Defined Benefit Plans."
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FASB Statement
No. 87
Issued in the United States by the Financial Accounting Standards
Board (FASB) in 1985, Statement 87 governs the ways in which an
employer accounts for and reports the costs of pension benefits
offered to its employees. The Statement, titled "Employers' Accounting
for Pensions," requires that, for accounting purposes, employers
use a cost method known as the projected unit credit method to
determine the net periodic cost of the pension benefits offered
to employees. Statement 87 also requires that an employer recognize
a liability if the net periodic cost is greater than employer
contributions to the plan, and an asset if net periodic cost is
less than employer contributions to the plan. An employer must
also recognize a liability known as the unfunded accumulated benefit
obligation if the accumulated obligations of the plan sponsored
by the employer exceed the fair market value of the plan's assets.
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FASB Statement
No. 88
Issued in the United States by the Financial Accounting Standards
Board (FASB) in 1985, Statement 88 establishes accounting requirements
for employers whose defined benefit pension plans are curtailed
or terminated, or experience other special events, such as a settlement
of a pension obligation through a lump-sum cash payment of benefits
to a plan participant. The Statement is titled "Employers' Accounting
For Settlements and Curtailments of Defined Benefit Pension Plans
and Termination Benefits."
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federally
qualified HMO
In the United States, a Health Maintenance Organization which
satisfies specific requirements set forth in the Health Maintenance
Organization Act of 1973. Federally qualified HMOs are entitled
to certain grants and loans from the federal government and are
eligible to be used by employers to satisfy the dual choice provision.
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fee-for-service
A payment system for health care where the health-care provider
is paid for each procedure or service rendered.
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fee schedule
A schedule or list of maximum benefits that will be paid under
a group medical contract for certain listed procedures. See also
relative value schedule. May simply be called a schedule.
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fee schedule
basis
A compensation plan used in health maintenance organizations (HMOs)
and preferred provider organizations (PPOs) in which a physician
is paid a predetermined amount for each service that the physician
provides. See also capitation basis.
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fiduciary
A person or organization who holds, manages and has discretionary
authority and control over money belonging to another person or
organization, or who renders investment advice in exchange for
compensation. When an insurance company manages pension funds,
the insurance company is acting as a fiduciary.
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field force
Those insurance agents who work out of an insurer's field offices.
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field offices
An insurance company's local sales offices.
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field underwriter
See insurance agent.
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field underwriting
The first step in the risk selection process. Field underwriting
occurs when an agent gathers pertinent information about the proposed
insured and reports that information on the application blank
so the home office underwriter can make an underwriting decision.
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fifth dividend
option
See additional term insurance option.
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final average
(final earnings) benefit formula
A type of defined-benefit formula in which the retirement benefit
amount is derived on the basis of a participant's average compensation
during a specified period (usually the three to five years preceding
retirement) during which the participant was most highly compensated.
Contrast with career average benefit formula.
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financial
institution
An organization that helps to channel funds through an economy
by accepting the surplus money of savers and supplying that money
to borrowers, who pay to use the money. Insurance companies are
financial institutions.
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financial
intermediary
A financial institution that borrows money on its own account
and loans money to other borrowers. Insurance companies are financial
intermediaries.
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financial
settlement
A lump sum payment by an insurer to a disabled insured that extinguishes
the insurer's responsibility under the disability contract. Also
known as a buy-out or commutation.
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first-dollar
coverage
Medical expense insurance under which no deductible or coinsurance
is applicable to covered expenses.
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first-year
commission
An amount paid to an insurance agent based on a policy's first
annual premium amount.
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501(c)(9)
trust
In the United States, a type of trust that many self-insured groups
establish to fund their group insurance plans. All contributions
to a 501(c)(9) trust are deductible for federal income tax purposes,
as are all investment gains made on funds in the trust. The trust
must meet certain federal government requirements. Also called
a voluntary employees' beneficiary association (VEBA). See also
self-insured group insurance.
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fixed amount
option
A life insurance settlement option under which the insurer uses
the policy proceeds plus interest to pay the beneficiary a sum
of money in a series of annual or more frequent installments for
as long as the proceeds plus interest last. Also called the fixed
payment option.
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fixed period
option
A life insurance settlement option under which the insurer pays
the beneficiary the policy proceeds plus interest in a series
of annual or more frequent installments for a specified length
of time.
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flat amount
formula
A method of determining the retirement benefit for participants
in a defined benefit pension plan. A flat amount formula provides
the same periodic (e.g., monthly, annual) benefit amount, for
example $500 per month, to each retiree. See also flat percentage
of earnings formula and unit-benefit formula.
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flat extra
premium method
A method for rating substandard risks used when the extra risk
is considered to be constant. The underwriter assesses a specific
extra premium for each $l,000 of insurance. Contrast with extra-percentage
tables method.
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flat percentage
of earnings formula
A method of determining the retirement benefit for participants
in a defined benefit pension plan. This method provides for each
participant to receive a certain percentage of preretirement compensation,
for example 60%. The actual payment amount under this formula
depends on how compensation is defined. See also career average
benefit formula, final average benefit formula, flat amount formula,
and unit-benefit formula.
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flexible
benefit plan
See cafeteria plan.
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flexible
premium annuity
A deferred annuity that gives the purchaser the right to vary
the amount of each premium paid to the insurer during the accumulation
period.
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foreign
corporation
From the point of view of a particular state in the United States,
a company that is incorporated under the laws of another state.
Compare to domestic corporation and alien corporation.
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foreign
insurer
In Canada, a non-Canadian insurance company that is incorporated
under the laws of a country which is not a member of the British
Commonwealth.
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foreseeability
The ability of an insured to have had a reasonable anticipation
that harm or injury would be a likely result of a certain act
or an omitted act.
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forfeiture
The unvested amount that remains in a pension or profit sharing
plan when a participant leaves the plan and withdraws the amounts
which are vested. Forfeitures may occur when an employee is terminated,
for example. Forfeitures must either be used to reduce the plan
sponsor's future contributions to the plan or be reallocated to
other participants.
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fractional
premiums
Premiums that are paid in installments during a year, such as
semiannually, quarterly, or monthly. Fractional premiums are so
called because they are fractions of the annual premium.
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fraternal
benefit society
An organization that exists to provide social and insurance benefits
to its members. In such a society, members often share a common
religious, ethnic, or vocational background, although some fraternals
are open to the general public.
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fraternal
insurance
Insurance coverage issued by a fraternal benefit society. See
also open contract.
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fraudulent
claim
A type of claim that occurs when a claimant intentionally uses
false information in an attempt to collect policy proceeds.
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fraudulent
misrepresentation
According to common law, a false statement which meets the following
three criteria: (1) the party that makes the statement is aware
that it is not true or disregards whether it is true; (2) the
party that makes the statement does so in order to induce another
party to enter into a contract; (3) the other party does enter
into a contract as a result of the statement and suffers a loss
because of the contract.
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free examination
period
The period of time after delivery of an insurance policy during
which the policyowner may review the policy and return it to the
company for a full refund of the initial premium. Full coverage
is in force during this period. Also called a ten-day free look.
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front-loaded
policy
A life insurance policy (usually a universal life insurance policy)
in which most of the expense charges take the form of deductions
from each premium payment. Such deductions continue throughout
the premium payment period. See also back-loaded policy and universal
life insurance.
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full-service
plan
A health insurance plan which pays in full the actual cost, if
reasonable and customary, of services received, rather than a
specified maximum for each service.
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fully contributory
An arrangement in which the insureds under a group policy pay
the entire cost of their insurance. Contrast with contributory
group insurance and noncontributory group insurance.
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funding
agency
The party who holds the assets of a pension plan. Often an insurance
company.
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funding
standard account
For qualified pension plans in the United States, a bookkeeping
account which is maintained in order to determine whether a defined
benefit pension plan is meeting minimum funding standards set
by law. Many of the entries to the account are derived actuarially.
If at any time the plan's funding is inadequate, then an accumulated
funding deficiency is said to exist. Also known as a minimum funding
standard account. See also minimum funding standards.
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funding
vehicle
The legal document which governs the management of pension funds
by a funding agency. When the funding agency is an insurance company,
the funding instrument is usually an insurance contract. Also
called the funding instrument.
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future
service
The prospective service that an employee will provide to an employer
from the date of entry into a pension, or from the current date,
to the employee's normal retirement date. Pension benefits provided
for this service are known as future service benefits. See also
past service.
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GAAP reserves
Reserves that are calculated in accordance with generally accepted
accounting principles.
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general
account
An undivided account in which life and health insurers formerly
recorded all incoming funds. General accounts are still usually
insurers' largest accounts, but since the early 1960s, life and
health insurers have begun using other accounts as well. See also
separate account.
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general
agency distribution system
Along with the branch office system, the general agency distribution
system is part of the agency system, which is the most common
system used to sell individual life insurance products. Under
the general agency system, each field office is headed by a general
agent, who is an independent entrepreneur under contract to the
insurer. As an independent entrepreneur, the general agent has
a great deal of control over how the field office is to operate.
Typically, the staff of the field office is employed by the general
agent, not the insurer; salaries and office expenses are paid
by the general agent, not the insurer; and the soliciting agents
are under contract to the general agent, not the insurer. In a
traditional general agency system, all commissions from the insurer
are paid to the general agent. The general agent keeps a portion
of each commission, called an overriding commission, and then
pays the remaining commission to the appropriate soliciting agent.
Some insurers have modified this procedure and now pay commissions
directly to soliciting agents and overriding commissions directly
to general agents. See also agency system, branch office distribution
system, and overriding commission.
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general
agent (GA)
The individual in charge of a field office of an insurer that
uses the general agency distribution system. The general agent
is an independent entrepreneur who is under contract to the insurer.
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generally
accepted accounting principles (GAAP)
The set of accounting principles used by most firms outside the
life insurance industry and sometimes used by life and health
insurance companies. GAAP is based on the going-concern concept
of asset valuation.
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GIC
See guaranteed investment contract (GIC).
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GI rider
See guaranteed insurability (GI) rider.
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good health
provision
A provision contained in some group credit policies stating that
a policy is void if the insured was not in good health when the
application was signed or when the policy was delivered, whichever
was specified in the contract.
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grace period
The length of time (usually 31 days) after a premium is due and
unpaid during which the policy, including all riders, remains
in force. If a premium is paid during the grace period, the premium
is considered to have been paid on time.
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graded-premium
whole life insurance
A type of whole life insurance in which premiums increase once
or at specified points in time, such as every three years, until
a premium that remains level is reached.
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gross premium
The amount that policyowners actually pay for their insurance.
The gross premium equals the net premium plus the loading.
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group creditor
life insurance
Group insurance coverage wherein a master contract is issued to
cover the lives of current and future debtors of the policyowner.
The beneficiary of such coverage is the policyowner.
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group deferred
annuity
A type of annuity sometimes used to fund a pension plan. Employer
contributions under a group deferred annuity contract are used
to purchase deferred annuities to provide for the retirement benefits
of plan participants.
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group insurance
Insurance that provides coverage for several people under one
contract, called a master contract.
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group life
insureds
In Canada, the persons who are insured by a group life insurance
contract. Usually simply called "insureds" in the United States.
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group ordinary
life insurance
Group life insurance in which at least a part of the coverage
is permanent and builds a cash-value.
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group paid-up
insurance
A type of contributory group life insurance in which the employee's
contributions are used to purchase paid-up whole life insurance
and the employer's contributions are used to purchase term insurance.
The amount of insurance coverage on each employee remains level
each year. Therefore, as the amount of paid-up insurance on an
employee increases over time, the amount of term insurance which
the employer must purchase to make up the difference decreases.
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group permanent
life insurance
Any of several types of life insurance which build a cash value
and are underwritten on a group basis. Group permanent life insurance
is often used to fund group pension plans and/or to provide life
insurance coverage that will continue after retirement.
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group persons
insured
In Canada, the persons who are insured by a group health insurance
contract. Usually simply called "insureds" in the United States.
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group practice
model (GPM)
A means of organizing a health maintenance organization (HMO)
in which the physicians in the HMO share a central facility. See
also individual practice association (IPA).
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group representative
A salaried insurance company employee who deals solely with the
distribution of group insurance products. The primary responsibilities
of group representatives include finding prospects, designing
proposals, installing the product, and renegotiating the policy
at renewal.
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group RRSP
In Canada, a collection of individual registered retirement savings
plans (RRSPs) established and maintained by an employer in order
to help employees save for retirement. Each RRSP within the group
is owned entirely by the employee. Employer contributions therefore
become vested as soon as they are made.
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group universal
life insurance (GUL)
Group life insurance for which the insured usually pays the full
premium and can choose the amount of premium to pay, and in which
the death benefit is determined by the amount of the premium.
The insured can vary the premium and death benefit amounts during
the life of the policy. Like individual universal life insurance,
GUL is designed to combine insurance protection with a savings/investment
element. In addition, GUL is usually "portable," which means that
a group member who leaves the group can continue coverage under
the group plan. Sometimes called a Group Universal Life Program
(GULP). See also universal life insurance.
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Guaranteed
Income Supplement (GIS)
In Canada, a supplemental monthly benefit available to Old Age
Security (OAS) recipients who receive less income than a stated
amount.
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guaranteed
insurability (GI) rider
An amendment to a life insurance policy that gives the policyowner
the right to purchase additional insurance of the same type as
provided in the original policy. The additional insurance can
equal no more than an amount specified in the policy contract
and can be purchased at specified premium rates and at specified
times without new evidence of insurability. Also called a policy
purchase rider.
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guaranteed
investment contract (GIC)
A pension plan funding vehicle in which an insurer accepts a single
deposit from a plan sponsor for a specified period of time, such
as five years, and holds the deposit at a specified rate of interest.
At the end of the period, the deposited funds, including accumulated
interest, are returned to the plan sponsor, who can reinvest the
plan assets with the insurer or with another party. Also called
a guaranteed income contract or a guaranteed interest contract.
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guaranteed-issue
insurance
Insurance coverage for which there is usually no individual underwriting.
All eligible members of a particular group of proposed insureds
who apply for the policy and who meet certain conditions are automatically
issued a policy.
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guaranteed
renewable policy
An individual health insurance policy that specifies that the
insurer will continue the policy until the insured reaches a specified
age, if premium payments are made when due. The insurer can change
premium rates for broad classes of insureds. See also cancellable
policy, conditionally renewable policy, noncancellable and guaranteed
renewable policy, noncancellable policy, and optionally renewable
policy.
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guaranty
association
In the insurance industry, an organization whose purpose is to
protect policyowners from losses suffered through the insolvency
of an insurance company.
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Guidelines
Governing Group Accident and Sickness Insurance
In Canada, Superintendents' Guidelines that regulate several aspects
of group health insurance contracts, including the types of groups
to which a group health insurance contract may be issued and the
particulars that must be included in the certificate issued to
each person insured by the contract. See also Superintendent's
Guidelines.
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Guidelines
Governing Group Life Insurance
In Canada, a set of guidelines issued by the Canadian Council
of Insurance Regulators which specifies, among other things, the
types of groups which are eligible for group life insurance.
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guide to
buying life insurance
In Canada, a written statement developed by the Canadian Life
and Health Insurance Association (CLHIA) which describes all of
the types of life insurance available and is intended to help
prospects for life insurance compare the advantages and disadvantages
of each type of policy.
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health
insurance
Insurance covering medical expenses or income loss resulting from
injury or sickness. Health insurance is a general category that
includes many different types of insurance coverage, including
hospital confinement insurance, hospital expense insurance, surgical
expense insurance, major medical insurance, disability income
insurance, dental expense insurance, prescription drug insurance,
and vision care insurance. See also disability income insurance
and medical expense insurance.
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health
maintenance organization (HMO)
Prepaid health plans in which you pay a monthly premium and the
HMO covers your necessary medical treatment. You must choose a
primary care physician from within the network to coordinate all
of your care. All specialty referrals need to be authorized by
your primary care physician.
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history
statement
An Attending Physician's Statement concerning a specific health
history admitted by the proposed insured.
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hold harmless
release
A discharge stating that a payee will reimburse an insurance company
if a subsequent claimant successfully challenges the disbursement
of the policy's proceeds.
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home-office-to-home-office
arrangement
A manufacturer-distributor arrangement in which an insurance company
that chooses not to offer a particular product or product line
agrees to act as a brokerage general agent for certain product
lines manufactured by another insurer.
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home service
agents
Exclusive or captive agents who work for home service companies
and who collect premiums and provide service at the policyowner's
residence. Home service agents offer monthly debit life, health,
and fire insurance products as well as products for which premiums
are billed by and remitted directly to the insurer. Some of their
business may also be in industrial insurance. They market products
primarily to middle and lower-middle income individuals and families.
See also industrial insurance and monthly debit ordinary (MDO).
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home service
distribution system
A distribution system which is used primarily for individual insurance
products and which employs agents who collect premiums and provide
service at the policyowner's residence. Each home service agent
works within a defined geographical territory. Home service agents
offer monthly debit life, health, and fire insurance products
as well as products for which premiums are billed by and remitted
directly to the insurer. Some market industrial insurance. The
home service market is usually middle and lower-middle income
individuals and families. See also industrial insurance and monthly
debit ordinary (MDO).
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hospital
confinement insurance
A type of health insurance that provides a predetermined flat
benefit amount for each day an insured is hospitalized. The benefit
amount does not vary according to the amount of medical expenses
the insured incurs, although some policies provide higher benefit
amounts if the insured is in an intensive or cardiac care unit.
Also called hospital indemnity insurance.
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hospital
expense insurance
See hospital-surgical expense insurance.
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hospital
indemnity insurance
See hospital confinement insurance.
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hospital-surgical
expense insurance
A type of health insurance that provides benefits related directly
to hospitalization costs and associated medical expenses incurred
by an insured for treatment of a sickness or injury. Most hospital-surgical
expense policies cover (a) hospital charges for room, board, and
hospital services, (b) surgeon's and physician's fees during a
hospital stay, (c) specified outpatient expenses, and (d) extended
care services, such as convalescent or nursing home costs.
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hour of
service
As defined by ERISA in the United States, an hour for which an
employee is entitled to be paid or is paid. An hour of service
can be earned while the employee is performing services for the
employer or during a period in which no service is performed due
to vacation, holidays, illness, or other paid leaves of absence.
See also year of service.
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H.R. 10
plan
See Keogh Act.
illness
perils
A classification used by health insurance underwriters to evaluate
the type and degree of peril represented by a particular occupation.
Illness perils include exposure to dust, poisons, and extreme
temperatures. See also accident perils.
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immediate
annuity
An annuity under which income payments begin one period after
the annuity is purchased.
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immediate
participation guarantee (IPG) contract
Similar to a deposit administration contract except that an IPG
contract does not fully protect the plan sponsor against investment
loss, nor does the IPG contract guarantee minimum investment returns.
See also deposit administration contract.
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impairment
Any aspect of the health, occupation, activities, or life-style
of a proposed insured that could increase his or her expected
mortality or morbidity.
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impairment
rider
An attachment to a health insurance policy that excludes or limits
coverage for a specific health impairment. Also called an exclusion
rider or impairment waiver.
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implied
authority
The authority that a principal intends an agent to have and that
arises incidentally from an express grant of authority. See agent
and principal. Compare to apparent authority and express authority.
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incentive
coinsurance provisions
Provisions included in some dental policies that promote regular
dental care by specifying that insurers will pay a higher percentage
of dental expenses if the insured receives regular dental examinations.
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incident
of ownership
Any policy right including the right to (1) change the beneficiary,
(2) cancel or surrender the policy, (3) assign the policy, (4)
obtain a policy loan, or (5) use the policy as collateral for
a loan.
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income
protection insurance policy
A type of disability income policy which specifies that an insured
is disabled if that person suffers an income loss caused by a
disability.
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income
replacement benefit
See recovery benefit.
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income
replacement ratio
The percentage of preretirement income that a retiree would need
to receive after retirement in order to have a postretirement
standard of living equivalent to his or her preretirement standard
of living. This ratio is generally less than 100 percent, because
some of an individual's expenses (i.e., taxes, commuting costs,
clothing expenditures, savings needs) decrease after retirement.
Also known as the replacement ratio.
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incontestable
clause
Life insurance policy clause that provides a time limit (usually
two years) on the insurer's right to dispute a policy's validity
based on material misstatements made in the application. See also
contestable period.
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increasing
term insurance
A type of term insurance in which the death benefit of the policy
increases during the term of coverage. The death benefit may increase
at stated intervals by some specified amount or percentage, or
it may increase according to increases in the cost of living.
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indemnity
See contract of indemnity.
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independent
life brokers
Licensed brokers who operate independently and specialize in selling
particular types of products or in meeting the business coverage
or estate planning needs of certain target markets.
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independent
marketing organization (IMO)
A non-company affiliated organization that contracts with an insurance
company to perform distribution and other marketing functions
for one or more of the company's products or product lines.
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independent
property/casualty (P/C) brokers
Independent, multiple-line agents or agencies that are primarily
engaged in the distribution of property/casualty products and
that make up what is commonly known in the property/casualty insurance
industry as the independent agency system or the American Agency
System.
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indeterminate
premium life insurance
A type of nonparticipating whole life insurance that specifies
both a maximum potential premium rate and a lower premium rate.
The lower rate is paid by the policyowner for a specified period
(from 1 to 10 years) immediately after the policy is purchased.
Later, the premium rate may fluctuate according to the investment
earnings of the insurance company, but the premium rate will never
be larger than the maximum premium rate. Also called flexible
premium life insurance, nonguaranteed premium life insurance,
and variable premium life insurance.
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indexation
In pension planning, the adjustment of postretirement benefits
to compensate for the effects of inflation. Benefits are generally
indexed to increase in accordance with an increase in the level
of a price index such as the Consumer Price Index (CPI). See also
cost-of-living adjustment (COLA).
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indexed
life insurance
A whole life plan of insurance that provides for the death benefit
of the policy and, consequently, the premium rate to increase
automatically every year in accordance with any increase in the
Consumer Price Index (CPI).
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individual
account plan
A pension plan funded according to a defined contribution formula.
Each participant's benefits are based on the amount contained
in that individual's account. See defined contribution formula
and defined contribution pension plan.
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individual
employer groups
A group insurance market segment composed of single employers
providing coverage for employees through a policy--the master
contract--issued to the employer.
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individual
fraud
A type of medical insurance fraud committed by individuals on
their medical expense claims in order to obtain benefits in excess
of their medical expenses. Contrast with provider fraud.
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individual
funding methods
Pension plan funding methods in which the amount of contributions
necessary to fund a plan is determined by first separately calculating
the contributions for each of the plan's participants and then
adding these amounts to arrive at the total required contribution
for the plan. Contrast with aggregate funding methods.
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individual
insurance
Insurance that is issued to an individual person, as contrasted
with group insurance. Also called ordinary insurance. See also
ordinary life insurance.
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individual
practice association (IPA)
A means of organizing a health maintenance organization (HMO)
in which the participating physicians maintain their own separate
offices. Such physicians usually treat both private patients and
HMO members. See also group practice model (GPM).
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individual
retirement account (IRA)
In the United States, a tax-sheltered savings plan that allows
some citizens to make pre-tax contributions to an approved account.
The contributions and investment earnings are taxable as income
only when paid out. Investors can establish IRAs through a number
of financial institutions, including insurance companies. See
also Keogh Act and simplified employee pension (SEP).
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industrial
insurance
A form of life insurance which today accounts for a small percentage
of the business sold through the home service distribution system
but a considerable percentage of the insurance in force. It is
characterized by (a) death benefits of $2,000 or less, (b) a weekly,
biweekly, or monthly premium payment schedule, (c) the collection
of premiums at the policyowner's residence by an agent, and (d)
minimum underwriting requirements. See also home service distribution
system.
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in-house
brokerage agency
A department established by an exclusive-agent company and staffed
by company-employed brokerage sales people whose primary function
is to solicit distribution agreements with other companies offering
products that the exclusive-agent company itself does not manufacture.
The company's agents can then broker business with those companies
through the in-house brokerage agency.
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initial
deductible
See deductible.
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initial
premium
The first premium payable for an insurance contract.
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initial
reserve
The reserve on a policy at the beginning of any given policy year.
The initial reserve includes the net annual premium then due.
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inside
build-up
See cash value.
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insolvency
clause
In the United States, a clause contained in most reinsurance contracts
and required by most states which specifies that, if the ceding
company becomes insolvent, the reinsurer must pay the ceding company
or its liquidator all reinsurance which comes payable, without
reduction, even if the ceding company or its liquidator has failed
to pay all or a portion of any claim.
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inspection
receipt
A receipt given to the applicant when the applicant receives a
policy for inspection. This inspection receipt states that the
insurance is not in effect and that there has been no delivery
of the policy in the legal sense.
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inspection
report
A report made by a consumer reporting agency concerning a proposed
insured's lifestyle, occupation, and economic standing. An inspection
report is considered an investigative consumer report, as defined
by the Fair Credit Reporting Act. See also investigative consumer
report.
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installation
The term used to include all the activities from the time a prospect
decides to purchase a group insurance policy to the time the master
contract and its individual certificates are issued.
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installment
certificate
A certificate issued to the beneficiary of a life insurance policy
that specifies the amount of each benefit payment and/or the period
during which benefit payments will be made under a settlement
option. An installment certificate also specifies whether a beneficiary
is allowed to withdraw all or part of the funds during the payment
period. See also settlement agreement and settlement options.
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installment
refund option
A form of life income option with refund which specifies that
any proceeds remaining after the death of the beneficiary will
be paid in installments to the contingent payee. Contrast with
the cash refund option.
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insurability
provision
An insurance provision stipulating that, for a policy to become
effective, the insured must still be insurable at the time of
policy delivery according to the underwriting rules and practices
of the company.
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insurability
statement
A questionnaire that an insurer may ask an applicant to complete
when a considerable amount of time has elapsed between the time
the application is received and the time the policy is actually
issued. The purpose of the insurability statement is to determine
if any insurability factors have changed since the original application
was completed. Insurability statements help protect insurers from
post-issue antiselection. See also antiselection.
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insurability
type temporary insurance agreement
An agreement issued in conjunction with a conditional premium
receipt that provides temporary life insurance coverage as of
the date specified in the agreement on the condition that the
proposed insured is insurable. See also conditional premium receipts
and temporary insurance agreements. Compare to approval type temporary
insurance agreement.
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insurable
interest
A condition in which the person applying for an insurance policy
and the person who is to receive the policy benefit will suffer
an emotional or financial loss if the event insured against occurs.
Without the presence of insurable interest, an insurance contract
is not formed for a lawful purpose and, thus, is void from the
start.
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insurance
A system of protection against loss in which a number of individuals
agree to pay certain sums of money, called premiums, to create
a pool of money which will guarantee that the individuals will
be compensated for losses caused by events such as fire, accident,
illness, or death.
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Insurance
Act
In Canada, a general statute that contains most of the insurance
law of a common law province and that regulates the conduct of
insurers and insurance agents within the province.
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insurance
agent
A representative of an insurance company who sells insurance.
An insurance agent locates prospective insurance customers, determines
the insurance needs of each customer, and assists the customer
in applying for insurance. Typically, an insurance agent will
deliver the policy when the application is approved, will collect
the initial premium, and will provide customer service to policyowners.
Also called an agent, a field underwriter, or a life underwriter.
See also broker, detached agent, general agent (GA), personal
producing general agent (PPGA), and soliciting agent.
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Insurance
Regulatory Information System (IRIS)
In the United States, an information system developed by the NAIC
to help state regulatory agencies assess the financial stability
of individual insurance companies by means of a series of ratios
derived from the companies' statutory annual statements.
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insurance
trust
A common form of trust, created during the lifetime of the person
who creates the trust, that is funded by insurance policies on
the life of the trust's creator or by the proceeds of such policies.
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insured
(1) In the United States and Quebec, a person whose life is insured
by an insurance policy (for individual life insurance policies,
called the life insured in the rest of Canada). (2) In the common
law provinces of Canada, the owner of an individual life insurance
policy (called the policyowner in the United States and the policyholder
or owner in Quebec). (For the purposes of this glossary, we have
used this term as it is used in the United States and Quebec,
except in the definitions of purely Canadian terms, in which cases
we have made it clear that we are using the term as it is used
in Canada.)
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insured
funding
A method of funding a pension plan in which the plan sponsor purchases
annuity or life insurance contracts on behalf of each participant.
The insurance company guarantees a certain benefit to each retiree.
See also group deferred annuity.
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insurer
The party in an insurance contract that promises to pay a benefit
if a specified loss occurs. Usually an insurance company.
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insurer-administered
group insurance plan
A group insurance plan for which the insurer performs the administrative
work. This administrative work includes computing the amounts
of the premiums due and mailing premium notices to the policyholder,
usually monthly.
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integrated
deductible
A type of deductible included in some major medical expense plans
that can be satisfied by amounts paid by the insured under basic
medical expense plans. Contrast with corridor deductible.
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integrated
dental plan
A dental plan which is part of a major medical policy.
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integrated
pension plan
A private pension plan in which the benefits or contributions
are coordinated with the benefits or contributions of a government-sponsored
pension plan.
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interest-adjusted
cost
One figure calculated under the interest-adjusted net cost (IANC)
method of comparing the costs of life insurance policies. The
interest-adjusted cost represents the average annual cost of a
policy and is calculated using premiums, dividends, and cash values.
Also called the surrender cost index (SCI).
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interest-adjusted
net cost (IANC) method
A method of comparing the costs of life insurance policies. The
IANC method weights dividends and cash values according to how
far into the future the various amounts are payable. Under this
method, three amounts are calculated: the interest-adjusted cost,
the interest-adjusted payment, and the equivalent level annual
dividend. Also known as the surrender cost index (SCI) method.
See also cost comparison methods.
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interest-adjusted
payment
One figure calculated under the interest-adjusted net cost method
of comparing the costs of life insurance policies. The interest-adjusted
payment represents the average annual payment for the policy and
is calculated using only premiums and dividends. Also called the
net payment cost index.
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interest
option
A life insurance settlement option under which the proceeds of
a policy are temporarily left on deposit with the insurer and
the money earned on those proceeds is paid annually, semiannually,
quarterly, or monthly to the beneficiary or other payee.
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interest-sensitive
insurance
See investment-sensitive insurance.
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interest-sensitive
whole life insurance
See current assumption whole life insurance.
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internal
replacement
The surrender of one life insurance policy in order to buy another
insurance policy that is issued by the same insurer.
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interpleader
A method for settling a claim under which the insurer pays the
policy proceeds to a court, stating that the company cannot determine
the correct party to whom the proceeds should be paid, and asks
the court to decide the proper recipient.
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investigative
consumer report
As defined by the Fair Credit Reporting Act, a consumer report
that uses interviews with persons who are associated with, or
who have knowledge of, the consumer in question in order to solicit
information regarding the consumer's character, mode of living,
or general reputation. See also inspection report.
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investment-sensitive
insurance
A general category of insurance products in which the death benefit
and the cash value vary according to the insurer's investment
earnings. In investment-sensitive insurance products, policyowners
share a portion of the insurer's investment risk. The exact benefit
amounts for these policies cannot be computed in advance, beyond
any guaranteed minimums. The specific products that make up this
category of insurance include variable annuities, variable life
insurance, and variable universal life insurance. Also called
interest-sensitive insurance.
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investment
year method (IYM)
An accounting method in which an insurer keeps records of the
interest rates it earns annually on funds assigned each year to
accounts within the general account. Also called the new money
method. Compare to the portfolio method.
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involuntary
plan termination
The curtailment of a pension plan initiated by a government organization,
such as the Pension Benefit Guaranty Corporation (PBGC) in the
United States, rather than by the plan sponsor. Contrast with
voluntary plan termination. See also distress termination and
standard plan termination.
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IPA
See individual practice association (IPA).
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IRA
See individual retirement account (IRA).
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irrevocable
beneficiary
A beneficiary whose rights to the proceeds of a life insurance
policy cannot be cancelled by the policyowner unless the beneficiary
consents. See also beneficiary.
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issuing
bank
A mutual savings bank that sells and issues life insurance policies
in its own name. Each issuing bank issues its own contracts, keeps
its own records, and invests the assets of its own insurance department.
See also agency bank and savings bank life insurance (SBLI).
jet
screening
The
process of evaluating simple applications for insurance as quickly
as possible according to strictly defined underwriting criteria.
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joint and
survivor annuity
An annuity under which a series of payments is made to two or
more annuitants. The annuity payments continue until both or all
of the annuitants have died. Also called a joint and last survivorship
annuity.
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joint and
survivorship option
A life insurance settlement option under which payments will be
made to two or more payees. These payments will continue until
both or all the named payees are deceased.
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joint credit
life insurance
Credit life insurance that pays the full benefit amount to a lender
upon the death of any of the cosigners of a loan.
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joint life
and last survivor option (JL&S)
In Canada, a pension plan provision which provides for the continuation
of pension benefits to the spouse of a retired plan participant
after the death of the participant. The survivor's benefits, which
usually are not as large as the original benefits, continue until
the death of the spouse. The provision is required in most Canadian
jurisdictions, unless the participant (with spouse approval) elects
to forego it. A very similar provision, called a qualified joint
and survivor (QJ&S) annuity, is required in the United States
for qualified pension plans.
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joint whole
life insurance policy
One insurance policy that covers two lives and that generally
provides for payment of the proceeds at the time of the first
insured's death.
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juvenile
insurance policy
A life insurance policy purchased by an adult to cover the life
of a child.
Keogh
Act
In the United States, the unofficial name for the Self-employed
Individuals Tax Retirement Act of 1962. The Keogh Act created
a mechanism for self-employed people to save money for retirement.
Under a Keogh plan, also called an H.R. 10 plan, an eligible person
deposits money in a government-approved account that is managed
by a financial institution, such as an insurance company or a
bank.
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key employee
In pension planning in the United States, a highly paid employee
who satisfies any one of four criteria relating to compensation
and company ownership. The criteria are described in legislation
and tax rules. The amount of benefits accrued to key employees
in a pension plan, as compared to benefits accrued to other employees,
is the major factor in determining whether the plan is a top-heavy
employee benefit plan. See top-heavy plan.
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key-person
insurance
Life insurance purchased by a business on the life of a person
(usually an employee) whose continued participation in the business
is necessary to the firm's success and whose death or disability
would cause financial loss to the company.
lapse
The termination of an insurance policy because premiums were not
paid when they came due.
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late-remittance
offer
A means of encouraging reinstatement of lapsed insurance policies.
A late-remittance offer specifies that the company will accept
an overdue premium after the grace period ends and will reinstate
the policy without requiring the policyowner to complete a reinstatement
application or submit evidence of insurability. Also called a
late-payment offer.
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late retirement
age
Retirement after the normal retirement age (usually age 65) contained
in a pension plan. In the United States, a qualified pension plan
generally cannot force a plan participant to retire at the normal
retirement age or any other age and generally cannot stop accruing
pension benefits for a plan participant who elects to work beyond
the normal retirement age. See also early retirement age and normal
retirement age.
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law of
large numbers
The theory of probability which specifies that the greater the
number of observations made of a particular event, the more likely
it will be that the observed results will approximate the results
anticipated by the mathematics of probability.
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legal actions
provision
In an individual health insurance policy, a provision that limits
the period during which a claimant may sue the insurer to collect
a disputed claim amount and which specifies that no suit may be
brought against an insurer until a specified period after a claim
is filed.
legal reserve
See statutory reserve. See also reserve for a list
of many different kinds of reserves.
letters
patent
In Canada, a procedure used by insurance companies wishing to
incorporate through the federal government or in the provinces
of Quebec, New Brunswick, Prince Edward Island, and Manitoba to
petition the appropriate government agency for incorporation.
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level commission
schedule
A commission schedule that provides the same commission rate for
the first and renewal years.
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levelized
commission schedule
A commission schedule that provides different percentages for
first-year and renewal commissions, but the differences between
these percentages are smaller than the differences between first-year
and renewal commissions under traditional commission schedules.
Also known as a heaped commission schedule.
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level premium
annuity
A deferred annuity for which the purchaser of the annuity pays
equal premium amounts at regular intervals, such as monthly or
annually, until the date the benefit payments are scheduled to
begin.
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level premiums
Premiums that remain the same each year that the life insurance
policy is in force.
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level premium
system
A life insurance pricing system whereby the purchaser pays the
same premium amount each year the policy is in force.
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level premium
whole life insurance
A type of whole life insurance for which equal premiums are payable
throughout the premium payment period.
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level term
insurance
A type of term insurance that provides a death benefit that remains
the same during the period specified. Premiums for level term
insurance policies usually remain the same throughout each term
of coverage.
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leveraged
ESOP
An employee stock ownership plan (ESOP) that borrows money and
uses the borrowed funds to buy stock of the employer. The employer
then makes regular contributions to the plan on behalf of the
participating employees. The ESOP uses this contributed money
to pay back the loan and allocates the stock little by little
to the employees. The employer's contributions are tax deductible
for the employer and tax deferred for the employee.
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liabilities
A company's debts and future obligations. For an insurance company,
liabilities include amounts owed to creditors and the actual and
expected claims of its policyowners and their beneficiaries.
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liability
insurance
A kind of insurance that provides a benefit payable on behalf
of a covered party who is held legally responsible for harming
others or their property.
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licensed
broker
An insurance salesperson who is not under an agency contract with
any insurance company, and who is usually considered to be an
agent of the client rather than of the insurer. Also known as
a pure broker.
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life annuity
A series of payments that are made at regular intervals as long
as a designated person, the annuitant, is then alive.
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life annuity
with period certain
A life annuity which promises that if the annuitant dies before
the end of a designated period (usually 5, 10, or 20 years), the
insurer will continue payments to a contingent payee until the
end of the designated period. Also called a life income with period
certain annuity.
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life income
option
A life insurance settlement option under which the insurer uses
the policy proceeds and interest to pay the beneficiary a series
of equal payments for as long as the beneficiary lives.
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life income
option with period certain
A life insurance settlement option in which the insurer guarantees
to pay the beneficiary a series of equal payments for a designated
period, such as 10 years; thereafter, the payments will continue
only as long as the original beneficiary lives. If the original
beneficiary dies during the guaranteed period, payments will be
made to a recipient designated by the original beneficiary until
the end of the guaranteed period, at which time all payments will
stop.
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life income
option with refund
A type of life income settlement option in which the insurer guarantees
that if the beneficiary dies before the total amount paid under
the option equals the proceeds of the policy, then the insurer
will pay the difference to a contingent payee. Also call a refund
life income option. See also cash refund option, installment refund
option, and settlement options.
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life income
with period certain annuity
See life annuity with period certain.
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life insurance
Insurance that provides protection against the economic loss caused
by the death of the person insured.
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life insured
In the common law provinces of Canada, the person whose life is
insured by an individual life insurance policy. Called the insured
in the United States and Quebec. (For the purposes of this glossary,
we have used the United States term "insured", except in definitions
of purely Canadian terms, in which cases we have made it clear
that "life insured" is a Canadian term.)
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lifetime
limit
A cap on the benefits paid under a policy. Many policies have
a lifetime limit of $1 million, which means that the insurer agrees
to cover up to $1 million in covered services over the life of
the policy.
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lifetime
maximum
For any individual, the maximum amount that a medical expense
policy will pay for all the eligible medical expenses the individual
incurs while insured under the policy.
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life underwriter
See insurance agent.
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limited
coverage policy
A type of medical expense policy designed to cover only those
medical expenses caused by a specified disease, such as cancer,
which is named in the policy. Also called a dread disease policy.
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limited-payment
whole life insurance
A type of whole life insurance that does not require premium payments
during the entire lifetime of the insured. Some limited-payment
policies specify the number of years during which premiums are
payable, while other policies specify an age after which premiums
are no longer payable. Single-premium whole life insurance, in
which only one premium payment is made, is an extreme type of
limited-payment insurance.
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living
benefit rider
A life insurance policy rider which allows the insured to receive
all or part of the policy's death benefit before the insured's
death if certain conditions are met. This type of provision is
often used to help an insured pay health care costs if he or she
becomes terminally ill.
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living
benefits
See accelerated benefits.
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loading
A charge that the insurer adds to the net premium to produce the
gross premium actually paid by the policyowner. The loading is
designed to cover the operating expenses of the company, to compensate
the company for the loss of income when policies lapse and to
provide margins for profits and contributions to surplus.
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location-selling
distribution system
A system that distributes insurance products by locating insurance
offices and agents in places where consumers generally shop for
other items or take care of other business matters, such as department
stores, grocery stores, and banks. Also known as the retail outlet
distribution system.
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lock-box
banking
A method of premium collection in which premium payments are received
at a specified post office box. The insurer authorizes a bank
to have access to that box and to remove and open the mail. All
premium payments are deposited immediately in the bank, and the
returned portions of the premium notices, along with a record
of deposits, are sent to the insurer.
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long-form
reinstatement application
A reinstatement application similar to a policy application in
that both address the long-term health history of the insured.
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long-term
care (LTC) insurance
Coverage available on an individual or group basis to provide
medical and other services to patients who need constant care
in their own home or in a nursing home.
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long-term
disability income insurance
Disability income insurance which typically provides disability
income benefits that begin at the end of a specified waiting period
and that continue until the earlier of the date when the insured
person returns to work, dies, or becomes eligible for pension
benefits. See also disability income insurance and short-term
disability income insurance.
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loss ratio
In pricing health insurance, the loss ratio is a means of comparing
claims losses to premium earnings. To determine its loss ratio,
an insurer divides the dollar amount of claims it incurred during
a given year by the dollar amount of premiums it earned during
the same year.
maintenance
expenses
The costs of keeping a policy in force. Maintenance expenses include
the cost of processing premium payments and making policy dividend
payments and the time that agents and customer service personnel
spend in servicing and conserving policies that are in force.
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major medical
insurance
A type of medical expense insurance that provides broad coverage
for most of the expenses associated with treating a covered illness
or injury. See also comprehensive major medical insurance and
supplemental major medical insurance.
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major services
In dental insurance, dental services, such as inlays, crowns,
prosthodontics, and orthodontics, which are often covered at 50
percent of their reasonable and customary charges.
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managed
care
An organized way to manage costs, use, and quality of the health-care
system. The major types of managed care plans are health maintenance
organizations (HMOs), point-of-service (POS) plans, and preferred
provider organizations (PPOs).
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managing general agent (MGA)
An independent contractor who is authorized to appoint PPGAs on
a company's behalf and who may represent more than one company.
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mandatary
In Quebec, a party who is authorized by another party, the mandator,
to act on the mandator's behalf in contractual dealings with third
parties.
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mandated
benefit
A benefit required by state law to be included in a health insurance
policy.
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mandator
In Quebec, a party who authorizes another party, the mandatary,
to act on the mandator's behalf in contractual dealings with third
parties.
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mandatory
securities valuation reserve (MSVR)
In the United States, a liability account that is designed to
absorb, within certain specified limits, realized and unrealized
capital gains and losses resulting from an insurer's investments.
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manual
rates
Premium rates that are established for broad classes of groups.
Manual rates are often used to establish premium rates for small
groups with no credible loss experience, and to establish initial
premium rates for large groups. See also blended rates and experience
rating.
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master
contract
The legal contract between an insurance company and a group insurance
policyholder. The master contract insures a number of people under
a single contract. Also called the master policy. See also certificate
of insurance.
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master
plan
A standardized form of pension or other employee-benefit plan
developed by a financial institution to simplify plan drafting
for plan sponsors. Although similar to a prototype plan, a master
plan usually refers to a plan document developed by a financial
institution (like an insurer) that can be adopted only by plan
sponsors who use that financial institution to fund the plan.
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master
policy
See master contract.
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matching
contributions
In the United States, contributions made by an employer to an
employee's Section 401(k) plan (cash or deferred arrangement)
and designed to equal the employee's contributions up to a certain
amount or percentage of compensation. See also elective contributions
and nonelective contributions.
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material
fact
A fact that is relevant to an insurance company's underwriting
decision regarding issuing or rating a policy.
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material
misrepresentation
In insurance, a misstatement by an applicant that is relevant
to the insurer's acceptance of the risk, because, if the truth
had been known, the insurer would not have issued the policy or
would have issued the policy on a different basis.
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matured
endowment
An endowment insurance policy that has reached the end of its
term during the lifetime of the insured and is therefore payable.
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maximum
benefit
The largest benefit amount that a defined benefit pension plan
is legally permitted to provide to a plan participant. In the
United States, the maximum benefit is determined under Section
415 of the Internal Revenue Code. The maximum benefit is subject
to legislative change and is generally indexed to inflation so
that it increases as price levels increase. In Canada, a maximum
pension benefit is also established under taxation rules. See
also contribution limit and section 415 limits.
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maximum
benefit period
The maximum length of time for which disability income payments
will continue.
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maximum
benefits for related confinements provision
A provision included in basic hospital and surgical policies that
limits the maximum benefits for all hospital confinements and
for all surgery performed during one period of sickness or for
any single injury.
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Medicaid
A joint federal-state health insurance program that is run by
the states and covers certain low-income people (especially children
and pregnant women) and disabled people.
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medical
application
An application for insurance in which the proposed insured is
required to undergo some type of medical examination. The results
of the medical examination are then reported to the insurance
company.
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medical
expense insurance
Any of several types of health insurance designed to pay for part
or all of an insured's health care expenses, such as hospital
room and board, surgeon's fees, visits to doctors' offices, prescribed
drugs, treatments, and nursing care. See also hospital confinement
insurance, hospital-surgical expense insurance, major medical
insurance, and specified expense coverage.
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medical
necessity provision
A condition included in most major medical expense plans, stating
that medical services that are educational or experimental in
nature are not eligible for coverage.
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medical
report
A report on a proposed insured's health that is completed by a
physician and is based on a physical examination and questioning
of the proposed insured. Such a medical report serves as part
of a medical application.
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medical
savings accounts (MSAs)
Health insurance plans which provide incentives for individuals
to replace high-premium, low-deductible policies with lower-cost,
high-deductible catastrophic coverage. Premiums for this coverage
are lower, and the savings may be used to fund a tax-preferred
medical savings account from which you can pay for qualified medical
care and expenses, including annual deductibles and copayments
on a pre-tax basis.
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Medicare
The federally sponsored health insurance program of hospital and
medical insurance primarily for people aged 65 and older.
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Medicare
carve-out
Medical expense coverage offered by employers to retired employees
that reduces medical expense benefits to the extent that those
benefits are provided by Medicare.
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Medicare
supplement
Medical expense coverage that provides benefits for certain expenses
not covered under Medicare. This coverage is available only to
individuals who are covered by Medicare and can be purchased by
individuals or by employers to cover retired employees.
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MIB, Inc.
(Medical Information Bureau)
MIB is organized as a non-stock, not-for-profit membership association
of life insurance companies of the United States and Canada. MIB
conducts a confidential interchange of information of underwriting
significance among its member life insurance companies. The interchange
enables MIB member companies to protect the interests of prospective
insurance consumers, policyholders and life insurance companies
from consumers who omit or misrepresent material facts on their
applications for life, health or disability insurance. If in the
underwriting of an application for insurance, an MIB member company
develops information which is significant to health or longevity,
a brief, coded resume of such information will be submitted to
MIB. If the consumer applies to another MIB member insurance company,
that company may request a copy of the report from MIB provided
it has obtained from the consumer a written authorization naming
MIB as an informational source. Under the general rules of the
association, an insurance company may not base its underwriting
decision solely on information provided by MIB. Each member company
must conduct its own underwriting investigation. Access to MIB
information is restricted to each member company's authorized
medical, underwriting and claims personnel. Consumers may request
disclosure of or correction to their MIB record by contacting
the MIB Information Office, P.O. Box 105, Essex Station, Boston,
MA 02112, (617) 426-3660.
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minimum
age requirement
In pension planning, a requirement that an employee attain a certain
age before being permitted to participate in the employer's pension
plan. In the United States, a private employer's qualified pension
plan cannot have a minimum age requirement greater than age 21.
See also minimum service requirement.
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minimum
deposit arrangement
An arrangement whereby a policyowner can apply the first-year
cash value of a policy to the initial premium amount.
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minimum
deposit business
The use of policy loans to pay premiums. In minimum deposit business,
a policyowner instructs the insurance company to pay the premium
out of the policy's cash value and to bill the policyowner for
a premium only if the cash value is insufficient to pay the premium.
Also called leveraged business.
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minimum
funding standards
In the United States, standards established under Section 412
of the Internal Revenue Code relating to the advance funding of
qualified pension plans. The standards are designed to ensure
that contributions to a qualified plan are adequate to meet the
plan's current and future obligations. Failure to satisfy minimum
funding standards can lead to penalty taxes and enforcement actions.
See also funding standard account.
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minimum
premium plan (MPP)
A group health insurance plan that is partially self-insured by
the group policyholder but fully administered by an insurance
company. The premium is small because the group policyholder pays
most of the claims itself. See also administrative services only
(ASO) contract and self-insured group.
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minimum
service requirement
In pension planning, a requirement that an employee complete a
certain period of employment (often known as a probationary or
waiting period) before being permitted to participate in the employer's
pension plan. In the United States, an employee who meets minimum
age requirements generally cannot be subject to a waiting period
of more than one year, although a plan with full and immediate
vesting of benefits can require a two-year waiting period. In
Canada, a two-year waiting period is permissible. See also minimum
age requirement.
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misrepresentation
(1) A false or misleading statement made to induce a prospect
to purchase insurance. Misrepresentation is a prohibited insurance
sales practice. (2) A false or misleading statement made by an
applicant for insurance. Certain misrepresentations provide a
basis for the insurer to avoid the policy.
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misstatement
of age provision
Life insurance policy wording that specifies the action the insurer
will take if, at the insured's death, the insurer discovers that
the insured's age was misstated in the application and the misstatement
has resulted in an incorrect premium for the amount of insurance
purchased. In an individual life insurance policy, this provision
specifies that the policy's benefit amount will be adjusted. In
a group insurance policy, this provision generally specifies that
the policy's premium amount will be adjusted.
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mode of
premium payment
The frequency with which premiums are paid (for example, annually,
quarterly, monthly).
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model bill
Sample legislation developed by the National Association of Insurance
Commissioners (NAIC) in the United States or the Canadian Council
of Insurance Regulators (CCIR) in Canada. States and provinces
may adopt this sample legislation exactly as written or use it
as the basis for developing their own laws.
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Model Life
Insurance Solicitation Regulation
In the United States, a regulation adopted by the NAIC in 1976
that requires insurers to give life insurance consumers (1) information
that will improve their ability to select the most appropriate
plan of life insurance to meet their needs, (2) an understanding
of the basic features of the policy that has been purchased or
that is under consideration, and (3) the ability to evaluate the
relative costs of similar plans of life insurance.
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Model Rules
Governing the Advertisement of Life Insurance
In the United States, an NAIC model law which provides a set of
comprehensive guidelines covering nearly all aspects of advertisements
for life insurance policies and annuity contracts.
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Model Unfair
Trade Practices Act
In the United States, an NAIC model law that prohibits unfair
trade practices, such as defamation, rebating, unfair discrimination,
and unfair claim settlement practices; the law contains a general
prohibition agahnst any form of insurance advertising that is
"untrue, deceptive, or misleading."
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modified
net premiums
Net premiums that are other than level, generally being lower
for the first year than for subsequent years.
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modified-premium
whole life insurance
A type of whole life insurance in which the policyowner pays a
lower than normal premium for a specified initial period, such
as five years. After the initial period, the premium increases
to a stated amount that is somewhat higher than usual. This higher
premium is then payable for the life of the policy.
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money market
fund
A low-risk mutual fund that achieves great liquidity by investing
primarily in short-term securities.
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money-purchase
pension plan
A type of defined contribution plan that specifies a rate of contribution
to each participant's account (for example, 8% of annual compensation)
and results in a benefit that is equal to the amount in the participant's
account (including investment gains and losses) at retirement.
Upon retirement, the money that the employer has contributed,
plus investment earnings, is often used to purchase an annuity
which will provide a regular pension benefit.
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monthly
debit ordinary (MDO) insurance
Ordinary life insurance that is marketed under the home service
system and paid for by monthly premium payments, usually made
to an agent. See also home service distribution system.
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monthly
outstanding balance method
In group creditor insurance, a premium-paying arrangement for
contributory plans whereby, every month, the lender adds to the
outstanding balance of the loan an amount sufficient to insure
that balance for one month. Contrast with single-premium method.
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moral hazard
The danger that a proposed insured might deliberately attempt
to conceal or misrepresent information. Moral hazard is a risk
factor that affects the underwriting decision.
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morbidity
Sickness, disability, or failure of health.
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morbidity
rate
The likelihood that a person of a given age will suffer an illness
or disability. The premium that a person pays for health insurance
is based in part on the morbidity rate for that person's age group.
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morbidity
table
A chart that shows the rates of sickness and injury occurring
among given groups of people categorized by age.
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mortality
charge
The cost of the insurance protection element of a universal life
policy. This cost is based on the net amount at risk under the
policy, the insured's risk classification at the time of policy
purchase, and the insured's current age.
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mortality
curve
A line graph that represents the mortality rates as they change
from age to age.
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mortality
experience
The actual number of deaths occurring in a given group of people.
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mortality
rate
The frequency with which death occurs among a defined group of
people. The premium that a person pays for life insurance is based
in part on the mortality rate for that person's age group.
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mortality
table
A chart that displays the rates of death among a given group of
people categorized by age. See also aggregate mortality table,
annuity mortality table, basic mortality table, select and ultimate
mortality table, select mortality table, and ultimate mortality
table.
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mortgage
redemption insurance
A form of decreasing term insurance that covers the life of a
person who takes out a mortgage. If the person dies during the
term of insurance, the policy proceeds will approximate the remaining
amount of the mortgage loan.
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multi-company
representation
In Canada, an arrangement by which a life and health insurance
agent is allowed to represent more than one insurance company.
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multi-employer
plan
A pension or other employee-benefit plan involving more than one
employer and established by collective bargaining (negotiation
between a union and employers). Coverage under the plan is portable
within the group, which means that an employee who leaves one
employer who is a member of the group and goes to work for another
member of the group may continue coverage under the plan.
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multiple-employer
trust (MET)
(1) An arrangement whereby several employers (often in the same
industry) cooperate to procure group insurance for their employees.
(2) An arrangement made by an insurance company to cover several
employers under one master policy, usually with specific benefit
packages and limitations.
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multiple-line
agency (MLA) system
A personal selling distribution system that uses full-time career
agents to distribute both life and health and property/casualty
insurance products for groups of financially interrelated or commonly
managed insurance companies. Also known as the multiple-line exclusive
agency system or all-lines exclusive agency system.
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mutual
benefit method
An early method of funding life insurance, formerly used by fraternal
orders or guilds. Under the mutual benefit method, the promised
death benefit was provided by charging participating members an
equal amount after the death of an insured member. Also called
the post-death assessment method. See also assessment method.
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mutual
insurance company
An insurance company owned by policyowners rather than stockholders.
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mutualization
The process of converting a stock insurance company to a mutual
insurance company.
NAIC
Model Privacy Act
A model bill written by the National Association of Insurance
Commissioners and designed to set standards for the collection,
use, and disclosure of information gathered for or by insurance
institutions, agents, or insurance-support organizations.
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National
Association of Insurance Commissioners (NAIC)
In the United States, an association of state insurance commissioners
designed to promote consistent insurance regulation. Although
the NAIC has no legal power, the recommendations of the NAIC and
the actions taken at its semiannual meetings carry great weight
with the individual state insurance commissioners, the state legislatures,
and the insurance industry. Similar to the Canadian Council of
Insurance Regulators in Canada.
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National
Association of Securities Dealers (NASD)
A voluntary association of securities firms empowered by the Maloney
Act of 1938 to regulate the affairs of securities firms and to
promote fair and ethical practices in the securities business.
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national
brokerage houses
Large, independent firms that specialize in providing risk management
and employee benefits advice to large, commercial clients.
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National
Organization of Life and Health Guaranty Associations (NOLHGA)
In the United States, an organization supported by the individual
state guaranty associations which are its members. It serves as
a central source of information for the state associations and
helps resolve problems created by the insolvency of insurers that
are licensed in more than one state. See also guaranty association.
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needs analysis
Part of the fact-finding stage in the personal selling process;
the process of developing a detailed personal and financial picture
of a prospect in order to evaluate his or her insurance needs.
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negotiated
trusteeship
An agreement resulting from collective bargaining (negotiation
between a union and one or more employers) which provides group
insurance for the members of the union. Also called a Taft-Hartley
Trust.
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net amount
at risk
The death benefit of a life insurance policy minus the policy's
reserve at the end of the policy year.
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net asset
value
The value or purchase price of a share of stock in a mutual fund.
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net benefit
premium
Under generally accepted accounting principles (GAAP), the portion
of the premium that funds the benefit reserve. See net premium.
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net cost
(1) In individual insurance, any one of several different figures
used to indicate the cost of an insurance policy. (2) In group
insurance, premiums less dividends.
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net level
premium reserve
The amount of liability that an insurance company establishes
for a policy. The net level premium reserve is calculated using
net level annual premiums.
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net payment
cost index
See interest-adjusted payment.
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net premium
The amount of money needed to provide life insurance benefits
for a policy. The net premium is calculated by using only an assumed
interest rate and a tabular mortality rate. No loading for expenses
is added. The net premium equals a policy's gross premium minus
the policy's loading. Under statutory accounting, the net premium
funds the benefit reserve. See also gross premium, loading, net
benefit premium, tabular interest rate, and tabular mortality
rate.
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net single
premium
The present value of the expected benefits of an insurance policy.
The net single premium is the amount of money that would have
to be collected at the time a policy is issued to assure that
there will be enough money to pay the death benefit of the policy,
assuming that interest is earned at the expected rate and that
claims occur at the expected rate.
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no-evidence
limit
In group insurance, the maximum amount for which an insurance
company will insure an individual without first securing evidence
of insurability. Also known as the guaranteed issue limit.
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no-load
fund
A mutual fund in which the investor buys shares directly from
the fund and no sales commissions are paid.
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nonadmitted
assets
Those assets that cannot be included on the balance sheet of a
life insurance company's Annual Statement.
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nonadmitted
reinsurer
In the United States, a reinsurer who is not licensed to accept
reinsurance in a given jurisdiction. Contrast to admitted reinsurer.
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noncancellable
and guaranteed renewable policy
An individual health insurance policy that the insurer cannot
terminate and for which the premiums cannot be raised. See also
cancellable policy, conditionally renewable policy, guaranteed
renewable policy, noncancellable policy, and optionally renewable
policy.
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noncancellable
policy
An individual health insurance policy for which the premium cannot
be raised by the insurer and which must be renewed by the insurer
until the insured reaches a specified age, provided premiums are
paid when due. See also cancellable policy, conditionally renewable
policy, guaranteed renewable policy, noncancellable and guaranteed
renewable policy, and optionally renewable policy.
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noncontributory
group insurance
A group insurance plan in which the insureds pay no portion of
the premium for their insurance. The group policyholder pays the
entire premium. If a group plan is noncontributory, the enrollment
of group members is automatic; all eligible group members are
covered. Contrast to contributory group insurance.
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noncontributory
plan
A pension or employee-benefit plan in which contributions are
made entirely by the plan sponsor. Contrast with contributory
plan.
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nonduplication
of benefits
A method of coordinating medical expense benefit payments between
two insurance carriers that allows the secondary carrier to pay
the difference, if any, between the amount paid by the primary
plan and the amount that would have been payable by the secondary
plan had that plan been the primary plan.
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nonelective
contributions
In the United States, contributions other than matching contributions
made by an employer to an employee's Section 401(k) plan (cash
or deferred arrangement). The contributions are made using employer
funds and not through a reduction of the employee's salary. See
also elective contributions and matching contributions.
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nonexclusive
territory
Under the general agency system, a territory in which more than
one general agent may represent the same insurer. Compare to exclusive
territory and overlapping territory.
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nonforfeiture
factors
Special values, similar to annual premiums, that some insurers
use to calculate their policies' cash values. Each insurer calculates
its own nonforfeiture factor. In the United States, the nonforfeiture
factor can never be greater than the adjusted premiums required
by the Standard Nonforfeiture Law.
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nonforfeiture
options
The various ways in which a policyowner may apply the cash value
of a life insurance policy if the policy lapses. See also automatic
nonforfeiture option, automatic premium loan (APL), cash surrender
value option, extended term insurance option, and reduced paid-up
insurance option.
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nonforfeiture
values
The benefits, as printed in a life insurance policy, that the
insurer guarantees to the policyowner if the policyowner stops
paying premiums. These amounts may be used in a variety of nonforfeiture
options.
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noninsured
pension fund
A pension fund that is not funded by insurance contracts.
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nonmedical
application
An application for insurance in which the proposed insured is
not required to undergo a medical examination. However, a nonmedical
application does contain questions that the proposed insured must
answer about his or her health. See also nonmedical supplement.
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nonmedical
supplement
A report that describes the proposed insured's health history.
A nonmedical supplement is completed by the agent based on information
provided by the proposed insured and can serve as part of a nonmedical
application. Also called a nonmedical declaration. See also nonmedical
application.
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nonparticipating
policy
A type of life insurance policy or annuity in which the policyowner
does not receive policy dividends. Also called a nonpar policy.
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nonqualified
annuity
A type of annuity in the United States funded with money that
has already been taxed by the federal government in the year in
which the funds are deposited.
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nonqualified
deferred-compensation plan
In the United States, a retirement income plan that does not meet
the requirements of the Internal Revenue Service (IRS) for qualified
plans. Although such plans do not receive the tax advantages of
qualified plans, they need not satisfy the restrictive plan design
requirements that qualified plans must satisfy. Nonqualified plans
are often used as a benefit for executives or highly compensated
employees.
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nonresident
license
A license authorizing an agent who resides in another state to
sell insurance in the licensing state.
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nonretroactive
disability benefits
A type of disability benefit that is payable only for the period
of disability that follows an elimination period.
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nonscheduled
dental plan
A dental plan which pays benefits for procedures based on the
dentist's actual charges, as long as the charges are usual, customary,
and reasonable. See also combination dental plan and scheduled
dental plan.
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nonsmoker
risk class
An underwriting risk class that includes people who are standard
risks and who have not smoked cigarettes for a specified period
of time, usually 12 months, before applying for insurance. People
in the nonsmoker risk class pay lower than standard premiums.
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normal
cost
The actuarially determined amount needed to fund for one plan
year the retirement benefits of a pension plan participant or
of a pension plan as a whole. A plan's normal cost is dependent
on the actuarial funding method and assumptions used by the plan.
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normal
retirement age
The earliest age at which a participant in a pension plan can
retire and receive the plan's specified benefit in full. Usually
age 65. See also early retirement age and late retirement age.
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notched
option
A method of integrating private pension plans with Canadian public
pension plans. Under this option, a participant who retires before
age 65 receives a greater benefit from the private plan until
age 65 and a smaller benefit after 65, when the participant begins
to receive public pension payments. When both the public and private
plan benefits are considered, the participant receives the same
combined benefit payment before and after age 65. However, this
benefit payment is smaller than the payment the participant would
have received had he or she waited until reaching age 65 before
beginning to receive benefits. The notched benefit is designed
so that the sponsor pays the same total benefit as it would have
if the amount of the private benefit payments had been constant
throughout. Compare to bridging supplement.
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numerical
rating system
A method of classifying risks in which each medical and nonmedical
factor is assigned a numerical value based on its expected impact
on mortality. See also credits and debits.
occupation
class
A group of occupations that present a similar risk to an insurance
company. If all other factors are equal, people in the same occupation
class will pay the same premium rates for health insurance.
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Office
of the Superintendent of Financial Institutions (OSFI)
In Canada, the government office that administers the federal
laws pertaining to the various financial institutions, including
insurance companies.
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Office
of the Superintendent of Insurance
In Canada, a provincial executive agency that is responsible for
administering the province's insurance laws and regulations.
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offset
A tax law provision that allows an insurer to use the amount paid
for one type of tax to reduce another aspect of the company's
tax liability.
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offset
approach
A way of integrating benefits from a private defined benefit pension
plan with benefits from a government plan. The benefit payable
from the private plan is reduced by a specified percentage of
the benefit received from the government plan.
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Old Age
Security Act (OAS)
Canadian legislation that provides a pension to virtually all
citizens who are age 65 or older.
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Old Age,
Survivors, Disability and Health Insurance Act (OASDHI)
The legislation that created Social Security in the United States.
See Social Security.
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open contract
A type of insurance contract used by fraternal benefit societies.
Under this type of contract, the society's charter, constitution,
and bylaws become a part of the insurance contract, and any amendments
to them automatically become amendments to the insurance contract.
No such amendment, however, can destroy or diminish benefits that
the society is contractually obligated to pay. See also closed
contract and fraternal benefit society.
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open debit
In a home service sales territory, a block of policyowners that
does not have an assigned servicing agent.
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option
A choice that a policyowner can make when deciding how to apply
settlements, dividends, or nonforfeiture values. See also dividend
options, nonforfeiture options, and settlement options.
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option
A plan
A plan used in universal life insurance in which the potential
policy proceeds remain level. In an option A plan, the policy
proceeds are equal to the policy's death benefit. Consequently,
the net amount at risk is equal to the difference between the
policy's death benefit and the policy's cash value. As the cash
value increases, the net amount at risk decreases. Contrast to
option B plan.
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option
B plan
A plan used in universal life insurance in which the potential
policy proceeds increase. In an option B plan, the policy proceeds
are equal to the death benefit plus the policy's cash value. Consequently,
the net amount at risk is always equal to the death benefit of
the policy. Contrast to option A plan.
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optionally
renewable policy
An individual health insurance policy that is renewable on a policy
anniversary only if the insurer chooses to renew it. See also
cancellable policy, conditionally renewable policy, guaranteed
renewable policy, noncancellable and guaranteed renewable policy,
and noncancellable policy.
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ordinary
insurance
See individual insurance.
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ordinary
life insurance
Life insurance which is available to individuals in relatively
unrestricted maximum death benefit amounts, and premiums may be
paid monthly or less frequently.
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original
age conversion
The fact or the act of changing a term life insurance policy to
a whole life policy at a premium rate based on the age of the
insured at the time the term policy was purchased.
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out-of-pocket
maximum
The maximum amount of money you will be required to pay in a calendar
year for deductibles and coinsurance. It is a stated dollar amount
set by the insurance company. Regular premiums and charges in
excess of usual and customary rates do not count toward the maximum
out-of-pocket amount.
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outliers
Medicare patients whose illnesses are unique and whose conditions
may not be classifiable under one of the diagnostic related groups.
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outstanding
premium
In Canada, a premium that is due on or before the policy statement
date but that has not been received by that date.
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overinsurance
An amount of insurance that is excessive in relation to the loss
insured against.
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overinsurance
provision
A provision in an individual health insurance policy specifying
that, under certain circumstances, policy benefits will be reduced
if the insured has more insurance than needed to cover medical
expenses or if disability income would exceed the insured's predisability
earnings. See also coordination of benefits (COB) clause.
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overlapping
territory
Under the general agency system, a territory in which some portion
of the territory is open to an agent other than the general agent,
while the rest of the territory is the exclusive domain of the
general agent. See also exclusive territory and nonexclusive territory.
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over-retained
The situation in which an insurance or reinsurance company has
accepted an amount of insurance which exceeds the company's normal
capacity on a specific risk. Also referred to as overlined.
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overriding
commission
A commission earned by a field office manager that is based on
the business produced by the agents in that office. An overriding
commission may be earned each time an agent sells business or
it may be based on the overall production of the field office.
Also called the override.
paid-up
additions
Additional life insurance purchased with policy dividends. No
additional premiums are needed for paid-up additions. Also called
dividend additions.
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paid-up
policy
An insurance policy that will provide benefits in the future but
that requires no further premium payments.
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paramedical
report
A report based on a physical examination and a medical history
completed by a medical technician, a physician's assistant, or
a nurse, rather than a physician. A paramedical report describes
the health of a proposed insured and can serve as part of an insurance
application.
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.partial
disability
A disability that prevents an insured from engaging in some of
the duties of his or her usual occupation or from engaging in
the occupation on a full-time basis.
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partial
disability benefit
A flat amount specified in a disability income insurance policy
that is payable when the insured suffers a partial disability.
Usually the partial disability benefit is half the full disability
benefit. See also residual disability benefit.
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partial
plan termination
The termination of a pension or employee-benefit plan for one
group of participants but not for another. Sponsors sometimes
do this to reclaim some of the assets of an overfunded plan.
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participating
policy
A type of life insurance policy or annuity under which policy
dividends may be paid to the policyowner. Also called a par policy.
See also dividend.
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partnership
insurance
A type of business insurance designed to provide funds so the
remaining partners in a business can buy the business interest
of a deceased or disabled partner. See also business-continuation
insurance.
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past service
The period of employment service rendered by an employee before
a pension plan was begun or amended or before the employee enrolled
in the pension plan. A plan sponsor must decide whether pension
benefits will be credited to an employee for the employee's past
service or only for current and future service. See also future
service.
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payee
The person to whom benefits are payable under a supplementary
contract. See also supplementary contract.
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payment
of insurance money into court
In the common law jurisdiction of Canada, an action that an insurer
takes when the insurer admits liability to pay policy proceeds
but cannot determine the proper recipient. Once the insurer pays
the money into court, the insurer is discharged of any further
liability under the policy. In Quebec, an insurer in such a situation
can obtain a valid discharge of liability by paying the policy
proceeds to the Minister of Finance. In the United States, the
process is called interpleader.
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payroll
deduction plan
(1) See salary-reduction plan. (2) A premium payment
method for individual insurance under which an individual's employer
deducts the employee's premium amount from his or her paycheck
and sends the premium to the insurer.
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peer review
group
A group of local physicians who help solve insurance claim disputes
and promote fair and ethical practices in the health-care industry.
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pension
A life income payable to a person who has retired.
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Pension
Benefit Guaranty Corporation (PBGC)
In the United States, the organization which insures benefits
in defined benefit pension plans. Its purpose is to make sure
that all participants in qualified defined benefit pension plans
receive the vested benefits to which they are entitled, even if
their pension fund goes bankrupt.
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Pension
Benefits Guarantee Fund
In Canada, a fund established in the province of Ontario to guarantee
payment of benefits in the case of the insolvency of a defined
benefit pension plan.
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Pension
Benefits Standards Act (PBSA)
In Canada, federal legislation that governs the administration
of pension plans covering federal employees and those individuals
whose employment falls under the legislative authority of the
Canadian Parliament (including those working in the transportation
field, telecommunications workers, and bank workers).
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pension
fund
(1) The assets used to pay the pensions of retirees. (2) An investment
institution established to manage the assets used to pay the pensions
of retirees.
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Pension
Index
In Canada, the index used by the Canada Pension Plan and Quebec
Pension Plan to vary pension benefit payments to reflect the effects
of inflation. The Pension Index is based on the Consumer Price
Index.
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per capita
beneficiary designation
A class beneficiary designation under which life insurance policy
proceeds are shared only by those class members who survive the
insured. Contrast to per stirpes beneficiary designation.
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per-cause
deductible
A deductible which must be satisfied for each separate accident
or illness before major medical benefits will be paid. Also known
as a per-disability deductible. Contrast with all-causes deductible.
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per-cause
maximum
For any individual, the maximum amount that a medical expense
policy will pay for medical expenses resulting from any particular
illness or injury.
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percentage
contribution
The amount of the premium that a group member pays in a contributory
group insurance plan. Also known as employee contribution or member
contribution. See also contributory group insurance.
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percentage
participation
See coinsurance.
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period
certain
The specified time during which the insurer unconditionally guarantees
that benefit payments will continue under a settlement option
or annuity.
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permanent
and total disability
A condition that prevents an insured from returning to any gainful
employment.
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persistency
The retention of business that occurs when a policy remains in
force as a result of the continued payment of the policy's renewal
premiums.
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personal
interview report
A report that contains the same types of information as an inspection
report, except that the personal interview report relies on the
proposed insured as the only source of information. See also inspection
report.
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personal
producing general agency (PPGA) system
A personal selling distribution system that relies on the use
of PPGAs.
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personal
producing general agent (PPGA)
A type of general agent who more closely resembles a broker than
an agency manager. Most PPGAs are under contract to several insurance
companies and spend the majority of their time selling insurance
rather than building and managing an agency office.
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personal
selling distribution system
An insurance distribution system that uses commissioned or salaried
sales personnel to sell products through oral presentations made
to prospective purchasers.
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per stirpes
beneficiary designation
A class beneficiary designation under which the descendants of
a deceased class member receive the deceased class member's share
of the life insurance policy proceeds. Contrast to per capita
beneficiary designation.
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physical
examination provision
A health insurance policy provision that grants the insurer the
right to have an insured who has submitted a claim examined by
a doctor of the insurer's choice at the insurer's expense.
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plan document
A written document that is adopted by an employer and that specifies
the terms of a pension plan. A plan document identifies the benefits
the participants are to receive and the requirements they must
meet to become entitled to those benefits.
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plan participant
A person on whose behalf contributions are made or benefits are
accrued under a pension or employee-benefit plan.
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plan sponsor
An entity which has adopted and maintains a pension or employee-benefit
plan. The plan sponsor is often an employer, but may be a union,
a trade or professional association, or a committee composed of
representatives of a number of employers or associations.
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point-of-service
(POS) plan
A type of managed care plan combining features of health maintenance
organizations (HMOs) and preferred provider organizations (PPOs),
in which individuals decide whether to go to a network provider
and pay a flat dollar copayment (say $10 for a doctor's visit),
or to an out-of-network provider and pay a deductible and/or a
coinsurance charge.
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policy
A written document that serves as evidence of an insurance contract
and contains the pertinent facts about the policyowner, the insurance
coverage, the insured, and the insurer.
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policy
acquisition costs
Costs that are directly attributable to the production of new
business. Also called acquisition expenses.
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policy
anniversary
The anniversary of the date on which a policy was issued. Sometimes
simply called the anniversary.
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policy
charge
An amount that an insurer adds to the gross premium to help cover
the insurer's expenses. This amount is the same regardless of
the size of the policy. Also called a policy fee.
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policy
filing
The process of obtaining legal permission to sell an insurance
product in a specific jurisdiction.
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policyholder
(1) The company or organization that owns a group insurance contract
(called the group policyholder in Canada). The policyholder of
a group insurance contract does not have the same ownership rights
under the contract that a policyowner has under an individual
contract. (2) In Quebec, the owner of an individual life insurance
policy (called the policyowner in the United States and the insured
in the rest of Canada). Also sometimes called the owner in Quebec.
(3) Often used interchangeably with policyowner.
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policy
loan
A loan that is made to a life insurance policyowner by an insurer.
A policy loan is secured by a policy's cash value and cannot exceed
the cash value. When the policy benefits are paid, the amount
of any outstanding policy loan made against the policy is deducted
from the benefits.
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policyowner
The person or party who owns an individual insurance policy. The
policyowner is not necessarily the person whose life is insured.
The terms policyowner and policyholder are frequently used interchangeably.
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policy
proceeds
The amount that the beneficiary actually receives from a life
insurance policy after adjustments have been made to the basic
death benefit for policy loans, dividends, paid-up additions,
late premium payments, and supplementary benefit riders. Compare
to basic death benefit and death benefit. Also called net policy
proceeds.
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policy
provisions
The statements, following the face page of an insurance policy,
that describe the operation of the insurance contract.
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policy
reserve
(1) A liability account that identifies the amount of assets that,
together with the future premiums to be received from in-force
policies, is expected to be sufficient to pay future claims on
those in-force policies. (2) The actual assets that guarantee
that the insurer will have sufficient funds to pay future claims.
See reserve for a list of reserves.
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policy
summary
A document, often in the form of a computer printout, that contains
certain legally required data regarding the specific policy being
considered by an applicant.
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policy
year
The 12-month period between a policy's anniversaries.
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pooling
In group insurance, the practice of underwriting a number of small
groups as one large group.
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portability
The ability of an individual to transfer from one health insurer
to another health insurer without regard to preexisting conditions
or other risk factors.
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portfolio
(1) A group of investments managed or owned by an individual or
organization. (2) All of the products offered by an insurance
company.
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portfolio
method
A method of accounting among insurers in which each customer or
policyowner receives a rate of interest equal to the average rate
of interest earned on the entire portfolio of assets in the insurer's
general account. Compare to the investment year method (IYM).
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post-notice
As required by the Fair Credit Reporting Act, a form that the
insurer must send to an applicant in cases in which the insurer
has made an adverse decision based on information contained in
a report from a consumer reporting agency.
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power of
agency
An agent's right to act for an insurer. The power of agency is
established through agency contracts between an insurer and its
agents.
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preadmission
review
A component of a utilization review program that requires an insured
person, or that person's physician, to obtain prior authorization
from an insurer before any non-emergency hospitalization.
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preauthorized
payment system
A cost containment feature of many group medical policies whereby
the insured must contact the insurer prior to a hospitalization
or surgery to receive authorization for the service.
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preauthorization
A cost containment feature of many group medical policies whereby
the insured must contact the insurer prior to a hospitalization
or surgery and receive authorization for the service.
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predetermination
of benefits provision
A provision often included in dental policies which specifies
that when dental treatments are expected to exceed a stated level,
such as $100, $150, or $200, the dentist should submit to the
insurer the proposed treatment plan for the patient so that the
insurer can determine the amount payable by the dental plan. Also
known as a preauthorization of benefits provision, precertification
of benefits provision, or pretreatment review provision.
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preexisting
condition
A health problem that existed before the date your insurance became
effective. Many insurance plans will not cover preexisting conditions.
Some will cover them only after a waiting period.
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preexisting
conditions provision
A provision in most medical expense insurance policies stating
that until the insured has been covered under the policy for a
certain period, the insurer will not pay benefits for any preexisting
condition.
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preference
beneficiary clause
Life insurance policy wording which states that if no specific
beneficiary is named, the insurer will pay the policy proceeds
in a stated order according to a list of individuals included
in the policy.
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preferred
beneficiary
In Canada, a class of beneficiaries applicable to policies issued
before June 20, 1962, and consisting of the spouse, children,
parents, and grandchildren of the insured. The policyowner can
change the beneficiary of a policy from a preferred beneficiary
to a beneficiary who is not a preferred beneficiary only with
the consent of the preferred beneficiary.
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preferred
provider organization (PPO)
A network of health-care providers with which a health insurer
has negotiated contracts for its insured population to receive
health services at discounted costs. Health-care decisions generally
remain with the patient as he or she selects providers and determines
his or her own need for services. Patients have financial incentives
to select providers within the PPO network.
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preferred
risk class
In life insurance, a risk class that consists of individuals whose
anticipated mortality is lower than the norm established for the
standard risk class. Among other things, people in the preferred
risk class are in excellent physical condition, have good family
medical histories, and do not smoke. Sometimes called the superstandard
risk class.
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preliminary
inquiry form
A type of application form used when there is a high probability
that a policy either will not be issued or will be issued with
such a high substandard rating that the policy premium will be
unacceptable to the applicant. Using a preliminary inquiry form
usually brings a quick response from the underwriting department.
Also called a trial application.
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premium
The monthly amount you or your employer pays in exchange for insurance
coverage.
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premium
deposits
Amounts that are left on deposit with the insurer for the payment
of future premiums.
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premium
receipt
An acknowledgement of an insurer's receipt of an initial premium.
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premium
receipt book
A book given to the policyowner when a home service agent makes
a policy sale. The premium receipt book contains prenumbered receipts
that are signed by the agent when the agent collects a premium.
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premium
reduction option
A life insurance policy dividend option under which policy dividends
are applied toward the payment of renewal premiums.
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pre-notice
As required by the Fair Credit Reporting Act, advance notice to
an insurance applicant from an insurer that an investigative consumer
report may be made on the applicant.
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preretirement
survivor annuity
A pension plan provision which specifies a benefit for the surviving
spouse of a vested plan participant if the participant dies before
retirement. In the United States, qualified plans are required
to include this provision, as are registered plans in Canada.
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prescribed
annuity contract (PAC)
In Canada, a kind of annuity that meets the criteria established
by the Income Tax Regulations to qualify as exempt from accrual
taxation.
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present
value
The amount of money that must be invested on a certain day, sometimes
called the evaluation date, in order to accumulate to a specified
amount at a later date.
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present
value factor
The number by which an amount of money to be paid later is multiplied
in order to derive the present value of that money.
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presumptive
disability
A condition that, if present, automatically causes an insured
to be considered totally disabled. Examples of presumptive disabilities
are total and permanent blindness or loss of two limbs.
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prima facie
rate
In group creditor insurance in the United States, the standard
premium rate recommended by state government regulators for a
contributory policy. An insurer can not charge more than the prima
facie rate when a contributory group creditor insurance policy
is first issued. Contrast with deviated rate.
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primary
beneficiary
The party or parties who have first rights to receive policy benefits
when the benefits of an insurance policy become payable.
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primary
care physician
Usually your first contact for health care under a health maintenance
organization (HMO) or point-of-service (POS) plan. This is often
a family physician, internist, or pediatrician. A primary care
physician monitors your health, treats most health problems, and
authorizes referrals to specialists, if necessary.
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primary
provider of benefits
In a coordination of benefits situation, the medical expense plan
that pays the full benefits provided by its plan before any benefits
are paid by another medical expense plan.
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principal
A party who authorizes another party, the agent, to act on the
principal's behalf in contractual dealings with third parties.
Called the mandator in Quebec.
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probability
The likelihood of some event occurring. In mathematics, probability
is the number of times that something is likely to occur out of
a number of possible occurrences. Probability theory is an essential
aspect of the mathematical foundations of insurance.
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probationary
period
See waiting period.
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proceeds
The amount of money that the insurance company is obligated to
pay for the settlement of a life insurance policy, endowment insurance
policy, or annuity.
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professional
reinsurer
An insurance company whose only or major line of business is reinsurance.
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profit
sharing pension plan
In Canada, a money purchase pension plan in which employer contributions
are linked to company profits. Employers must make a minimum contribution
of 1% of employee earnings, regardless of whether they make a
profit, and the plan is subject to the same legal requirements
as pension plans.
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profit
sharing plan
An employee-benefit plan whereby the employer pays a portion of
the company's profits to the employees. The employer's contributions
are discretionary and may be (1) paid in cash or stock when profits
are determined, (2) deferred to individual accounts for each employee,
or (3) distributed by a combination of the two methods. Profit-sharing
plans can be used as a source of retirement income or as a more
short-term savings/investment vehicle.
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property
insurance
A type of insurance that provides a benefit if insured items are
damaged or lost because of fire, theft, accident, or other cause
described in the policy.
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proposal
form
In Canada, a document that is given to a prospective purchaser
of an insurance policy and that contains personalized information
about the policy and policy values.
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prototype
plan
A standardized form of pension or other employee-benefit plan
developed to simplify plan drafting for plan sponsors. Similar
to a master plan.
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provider
Any person (doctor, nurse) or institution (hospital, clinic, laboratory)
that provides medical care.
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provider
fraud
A type of medical insurance fraud that is initiated by a medical
care provider on patients' claims in order to increase the provider's
own income. Contrast with individual fraud.
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proximate
cause of death
An event that is directly responsible for a death or an event
that initiates an unbroken chain of events that lead to death.
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prudent
expert rule
The legal requirement that the sponsor or manager of a pension
plan exhibit certain standards of competence and prudence in accounting
for assets in a pension plan and investing the pension plan's
funds.
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pure endowment
An amount payable only to those people who survive for a certain
period of time; those who do not survive that period of time receive
nothing. Unless they are combined with some form of life insurance,
pure endowments are generally illegal.
qualified
annuity
In the United States, a type of annuity which is funded with money
that is deductible, up to a stated maximum, from the depositor's
gross income in the year in which the funds are deposited.
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qualified
domestic relations order (QDRO)
In the United States, a decree or settlement in regard to alimony,
child support, or marital property rights that assigns all or
a portion of a plan participant's pension benefits to an alternate
payee. The alternate payee is generally a spouse, former spouse,
or a child or other dependent of the plan participant.
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qualified
joint and survivor (QJ&S) annuity
In the United States, a form of annuity which provides for the
continuation of pension benefits to the spouse of a retired pension
plan participant after the death of the participant. The survivor's
benefits, which cannot be less than 50 percent nor more than 100
percent of the original benefits, continue until the death of
the spouse. This form of annuity is required in United States
qualified plans, unless the participant (with consent of the spouse)
elects to forego it. A similar requirement, called the joint life
and last survivor (JL&S) option, applies in most Canadian
jurisdictions.
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qualified
plan
In the United States, a pension plan or employee-benefit plan
which meets a series of federal government requirements and is
therefore eligible for certain tax advantages.
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Quebec
Pension Plan (QPP)
A plan that primarily provides retirement income and long-term
disability income benefits to residents of Quebec.
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quota share
reinsurance plan
A type of reinsurance plan in which the assuming company reinsures
a specified percentage of every risk of a certain type insured
by the ceding company.
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qualified
plan
In the United States, a pension plan or employee-benefit plan
which meets a series of federal government requirements and is
therefore eligible for certain tax advantages.
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Quebec
Pension Plan (QPP)
A plan that primarily provides retirement income and long-term
disability income benefits to residents of Quebec.
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quota share
reinsurance plan
A type of reinsurance plan in which the assuming company reinsures
a specified percentage of every risk of a certain type insured
by the ceding company.
safety
margin
In life insurance, the safety margin is the amount by which actuaries
increase the probability of mortality for each age group in a
mortality table. The safety margin helps protect the insurance
company from adverse experience.
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salaried
sales agents
Insurance sales representatives who are employees of the insurer
and who are usually paid on a salary plus incentive compensation
basis. Salaried sales personnel may work with other agents or
independently, may make sales directly to consumers or promote
the sale of an insurer's products through other intermediaries,
and are often used to distribute group insurance and pension products.
Also known as salaried sales representatives.
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salaried
sales distribution system
A distribution system that uses salaried employees of the insurance
company to sell and service policies. Salaried sales personnel
may work either with agents or independently and are often used
to distribute group insurance products.
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salary
continuation plan
A disability or sick-leave plan which provides for employees to
continue to receive up to 100 percent of their salary for a limited
number of days if they become ill or disabled. The number of days
per year granted to an employee generally increases as the employee's
length of service increases. Most such plans are self-insured.
Also known as a sick-leave plan.
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salary-reduction
plan
A plan whereby an employee authorizes the employer to reduce the
amount of compensation that the employee receives in cash and
to contribute the difference to a group insurance, pension or
other employee-benefit plan.
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sales illustration
A graphic representation used by an agent to help explain an insurance
product to a potential customer. Sales illustrations often consist
of numeric charts describing the customer's goals and the cost
elements and mechanics of the insurance product being proposed.
Sometimes simply called an illustration.
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savings
bank life insurance (SBLI)
In the United States, life insurance coverage sold by authorized
savings banks to people who live or work in the state in which
the insurance is sold. Savings bank life insurance is permitted
in three states -- Massachusetts, New York, and Connecticut.
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savings
plan
A defined contribution plan offered by an employer or other plan
sponsor to give employees/participants a vehicle for investing
funds for retirement or other needs. Most plans feature employer
matching of employee contributions, and plan participation is
voluntary. Also known as a thrift plan.
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scheduled
dental plan
A dental plan which pays fixed benefits for specific procedures
according to a schedule. See also combination dental plan and
unscheduled dental plan.
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second-to-die
life insurance
See survivorship life insurance.
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Section
79
Section 79 of the United States Internal Revenue Code, which provides
that employer contributions to purchase group term life insurance
receive preferable tax treatment. It also gives a list of specifications
which a plan must meet in order to be considered a nondiscriminatory
group term insurance plan for tax purposes.
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Section
401(k) Plan
In the United States, a qualified cash or deferred profit-sharing
or stock-bonus plan which allows participants to decide how much
of their compensation is deferred. Participant contributions are
not taxable until the funds are withdrawn, and sponsor contributions
as well as investment earnings are also tax-deferred to the participant.
Also called a Cash or Deferred Arrangement (CODA).
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Section
403(b)
Plan in the United States, a type of employee retirement plan
established by certain tax-exempt organizations (i.e., hospitals,
charities, churches) and educational organizations. Section 403(b)
plans were created by Congress to serve as an incentive for tax-exempt
organizations (who could not benefit from the tax advantages of
qualified pension plans) to offer their employees some form of
retirement compensation. Also known as a tax-deferred annuity
(TDA) plan or a tax-sheltered annuity (TSA) plan.
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Section
415 limits
In the United States, limits placed on the amount of annual additions
(contributions) that can be made on behalf of a defined contribution
plan participant or the amount of benefits that can be paid to
a participant in a defined benefit plan. These limits are determined
under Section 415 of the Internal Revenue Code. See also contribution
limit and maximum benefit.
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Section
3460
In Canada, a set of recommendations contained in section 3460
of the Canadian Institute of Chartered Accounts (CICA) Handbook
which concerns employers' accounting for pension costs and obligations.
Section 3460 recommends that, for defined benefit plans, the projected
benefit method be used to determine pension costs for accounting
purposes.
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segmentation
A process by which an insurer divides its general account investments
into distinct parts, or segments, that correspond with each of
the insurer's major lines of business. For example, one segment
can be used to account for group life insurance investments, while
another can be used to account for individual life insurance investments.
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segregated
account
In Canada, an asset account that stands apart from a company's
general account. Called a separate account in the United States.
See also separate account.
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self-administered
group insurance plan
Under this type of group insurance plan, the group policyholder
rather than the insurer performs most of the administrative work
for the plan. The policyholder maintains detailed records of group
membership, processes routine requests, such as requests for beneficiary
changes and name and address changes, prepares its own premium
statements, and, in some cases, prepares certificates for new
group members.
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self-insured
group insurance
A form of group insurance in which the group sponsor, not an insurance
company, is financially responsible for paying claims made by
group insureds. A group may be partially or fully self-insured.
See also administrative services only (ASO) contract.
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separate
account
An account maintained separately from a life insurance company's
general accounts to help manage the funds used for nonguaranteed
insurance products. By maintaining separate accounts, insurance
companies are able to modify some of their investment strategies
without affecting the funds in the general accounts. Called a
segregated account in Canada. See also general account and investment-sensitive
life insurance.
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separate
account contract
A pension plan funding vehicle in which a pension's assets are
invested through an insurer's separate account. A separate account
contract usually does not guarantee investment performance. Also
called an investment facility contract.
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settlement
(1) See financial settlement. (2) In the United States,
an irrevocable action that relieves the plan or plan sponsor of
the obligation for a pension benefit and that eliminates the risk
to the plan assets used to carry out the settlement. One example
of a settlement is payment of a lump-sum benefit to a plan participant,
thus discharging any further benefit obligation to the participant.
Settlement is defined in FASB Statement No. 88.
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settlement
agreement
The arrangement made between an insurer and a policyowner (or
beneficiary) concerning the manner in which the insurer will pay
the policy proceeds to the beneficiary. See also settlement options.
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settlement
option payments
Periodic payments made by an insurance company in lieu of an immediate
lump-sum payment of life insurance policy proceeds.
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settlement
options
Choices given to the policyowner or the beneficiary of a life
insurance policy regarding the method by which the insurer will
pay policy proceeds. Also known as optional modes of settlement.
See also fixed amount option, fixed period option, interest option,
joint and survivorship option, life income option, life income
option with period certain, life income option with refund, and
straight life income option.
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settlement
option table
A table showing the various amounts that the insurance company
will pay as periodic payments in the settlement of a life insurance
policy.
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short-form
reinstatement application
A reinstatement application that asks a few questions designed
to guard against reinstatements by insureds whose conditions have
changed drastically since the premium due date. A short-form reinstatement
application is generally used for reinstatements requested within
a comparatively short period, such as 30 to 90 days, after the
end of the grace period.
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short-term
disability income insurance
Disability income insurance which provides a benefit for a short
disability or for the first part of a long disability. See also
disability income insurance, long-term disability income insurance,
and weekly indemnity plan.
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simplified
employee pension (SEP)
In the United States, a pension plan in which an employer contributes
money to an individual retirement account (IRA) for each employee
covered by the plan. The IRA is owned by the employee, not the
employer. A SEP is especially useful to employers who cannot afford
the time or money needed to administer and maintain a more complicated
pension plan. SEPs may also be used by self-employed persons.
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simultaneous
death act
A state or provincial law which provides that if the insured and
the primary beneficiary both die under conditions in which it
is impossible to determine which one died first, the insured will
be presumed to have survived the primary beneficiary unless there
is a policy provision to the contrary.
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single
premium annuity
An annuity that is purchased with only one premium payment. A
single premium annuity can be an immediate annuity or a deferred
annuity.
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single-premium
deferred annuity (SPDA)
A deferred annuity for which only one premium payment is made.
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single-premium
method
In group creditor insurance, a premium-paying arrangement for
contributory plans whereby, at the inception of the loan, the
entire premium amount for the insurance is either paid in a lump
sum by the borrower or added to the principal of the loan. Contrast
with monthly outstanding balance method.
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single
purchase annuity contract
A group contract in which a single premium is applied to purchase
annuities for participants in a pension plan that is terminating.
Immediate annuities are purchased for current retirees in the
plan, and deferred annuities are purchased for participants who
have not yet reached retirement age.
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six and
six exclusion
A preexisting conditions exclusion commonly used in credit disability
policies, which states that an insured's disability is not covered
if the insured (1) was treated for the condition within six months
prior to the effective date of coverage and (2) becomes disabled
from that same condition within six months after the effective
date of coverage.
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small estates
statutes
Legislation that enables an insurer to pay relatively small amounts
of policy proceeds to an estate without involved court proceedings.
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small group
insurance plan
A type of group life insurance plan that uses group underwriting
techniques but adds some degree of simplified individual underwriting
and is designed to cover groups containing 2 to 25 people. Also
called a baby group plan.
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social
insurance supplement policy
A medical expense policy sold by insurance companies to provide
benefits that complement the benefits available from a specified
government health insurance program.
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Social
Security
In the United States, a program of the United States federal government
that provides retirement income, health care for the aged, and
disability coverage for eligible workers and their dependents.
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Social
Security Disability Income (SSDI)
In the United States, a long-term disability income program that
provides benefits to disabled workers who are under age 65 and
who have paid a specified amount of Social Security tax for a
prescribed number of quarter-year periods.
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sole proprietorship
insurance
Insurance on the life of the sole proprietor of a business. Sole
proprietorship insurance is used either to pay the salary of someone
hired to run the business after the owner's death or disablement
or to compensate the owner's family for the loss of potential
income due to the failure of the business after the owner's death
or disability.
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soliciting
agent
Typically, an insurance agent who works under a general agent
or a branch manager. The soliciting agent is the person who actually
contacts prospective customers, delivers policies, and collects
initial premiums. See also insurance agent.
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specified
expense coverage
Health insurance coverage which provides benefits for specific
medical supplies or treatments or for specific illnesses. Examples
include dental expense coverage, vision care coverage, prescription
drug coverage, long-term care (LTC) coverage and dread disease
coverage. See also limited coverage policy and long-term care
(LTC) insurance.
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spendthrift
trust clause
A life insurance policy provision that protects, under certain
conditions, policy proceeds held by the insurer from being seized
by a beneficiary's creditors.
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split-dollar
insurance plan
A type of business insurance in which an employee is covered by
individual life insurance that is paid for jointly by the employee
and the employer. The employee names the beneficiaries. Each year
the employer pays the portion of the premium that is equal to
the increase in the policy's cash value for that year, and the
employee pays the balance of the premium. If the employee dies,
the employer will receive an amount of the proceeds equal to the
cash value of the policy, while the beneficiaries of the policy
will receive the remaining benefits.
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split funding
A method of funding a pension plan in which a portion of the total
contributions to the plan are used to purchase an allocated funding
instrument while the remainder of the contributions are placed
in an unallocated fund.
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spouse
and children's insurance rider
An addition to a life insurance policy that provides coverage
for a spouse and/or children.
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spouse's
allowance
In Canada, a benefit available to some spouses of Old Age Security
(OAS) recipients. The benefit is designed to ensure that a married
couple in which one spouse is age 60 to 65 receives a minimum
monthly pension that is comparable to the monthly pension of a
married couple in which both spouses are over the age of 65.
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stacking
The practice of ignoring benefits payable under public pension
plans in the design or selection of private pension plans. When
no attempt is made to integrate benefits from a public and a private
pension plan, the two plans are said to be "stacked."
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Standard
Nonforfeiture Law
A law, which is virtually uniform in all states, specifying the
minimum cash values required to be provided by life insurance
policies.
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standard
plan termination
In pension and employee-benefit plan terms, the process of terminating
a plan which has sufficient funds to cover all the benefit amounts
to which the plan's participants are entitled. Contrast to distress
termination. See also involuntary plan termination and voluntary
plan termination.
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standard
premium rate
The premium rate charged for insurance on a person classified
as having an average likelihood of loss.
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standard
risk class
A risk class made up of individuals whose anticipated likelihood
of loss is regarded as average. People in the standard risk class
pay standard premium rates. Most insureds are included in the
standard risk class.
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Standard
Valuation Law
A law, which is virtually uniform in all states, specifying minimum
standards for calculating, or valuing, insurance reserves.
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status
clause
A type of war hazard exclusion that excludes payment of benefits
for any loss occurring while an insured is in military service.
Contrast with result clause.
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statutory
accounting practices (SAP)
The accounting methods and principles that apply to the completion
of the statutory Annual Statement which life insurance companies
are required to submit to regulatory authorities.
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statutory
reserve
A reserve that is reported to government authorities, as required
by statutes. Also called a legal reserve. See also policy reserve.
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stock bonus
plan
An employee-benefit plan whereby part of the employees' compensation
is in the form of the employer's stock. Most stock bonus plans
are maintained in the same fashion as profit-sharing plans, but
the employer's stock contributions are not necessarily related
to profits. As with profit-sharing plans, employer contributions
are most often discretionary, and the plan may not be intended
as a retirement plan.
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stock insurance
company
An insurance company that is owned by people who buy shares of
the company's stock.
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stock option
incentive
An incentive plan for executives whereby an employer offers to
sell the company's stock to the executive at a certain price on
a certain date. It is in the executive's interest for the company
to do well and the stock's value to rise. If the stock's value
does rise, the executive may, by exercising the stock option,
be able to buy the company's stock at a price below the stock's
market value, thus making a paper profit (if the stock is or must
be held) or a realized profit (if the stock is sold at the higher
price).
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stock repurchase
insurance
Life insurance intended to finance the purchase of stock from
the estate of a deceased stockholder by other stockholders in
the same company. Typically used for closely-held corporations
that have few stockholders. See also business-continuation insurance.
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stop-loss
provision
A health insurance policy provision specifying that the insurer
will pay 100 percent of the insured's eligible medical expenses
after the insured has incurred a specified amount of out-of-pocket
expenses under the coinsurance feature.
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straight
life annuity
An annuity that provides periodic payments to the annuitant for
as long as the annuitant lives and that provides for no benefit
payments after the annuitant's death.
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straight
life income option
A life insurance policy settlement option under which payments
to the beneficiary-payee will continue until the payee's death,
after which no further payments are made.
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straight
life insurance
See continuous-premium whole life insurance.
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substandard
broker
A general agent who runs a brokerage shop specializing in finding
coverage for substandard cases or selling the products of several
insurers with expertise in underwriting substandard risks.
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substandard
premium rate
The premium rate charged for insurance on an insured person classified
as having a greater than average likelihood of loss. This premium
rate is higher than a standard premium rate.
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substandard
risk class
A risk class made up of people with medical or nonmedical impairments
that give them a greater than average likelihood of loss. Substandard
risks pay higher-than-standard premiums.
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successor
owner
A person designated to become the owner of a life insurance policy
if the owner dies before the person insured by the policy dies.
In Quebec, known as the contingent owner.
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suicide
clause
Life insurance policy wording which specifies that the proceeds
of the policy will not be paid if the insured takes his or her
own life within a specified period of time (usually two years)
after the policy's date of issue.
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summary
information folder
In Canada, a document that is used in marketing variable life
insurance products. The document discloses all of the material
facts about the particular variable contract and contains certain
statements of financial information about the contract's segregated
funds.
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Summary
Plan Description (SPD)
(1) In the United States, a document required by ERISA to provide
information about a pension plan to plan participants in simple
language. The SPD must, among other requirements, identify the
plan's administrator and those who are responsible for managing
the plan's assets, must explain the plan's eligibility requirements
and the circumstances under which a plan participant could forfeit
his or her benefits under the plan, and must explain the procedures
for making claims under the plan. (2) In the United States, a
description of various aspects of a group insurance plan which
must be provided to all plan participants and to the Department
of Labor.
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superimposed
major medical plan
A major medical plan that is coordinated with various basic medical
expense coverages and that provides benefits for expenses that
exceed these coverages.
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Superintendent
of Insurance
In Canada, the director of a provincial Office of the Superintendent
of Insurance.
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Superintendent's
Guidelines
In Canada, a series of recommendations made by the Canadian Council
of Insurance Regulators (CCIR) to insurance companies concerning
a variety of matters, such as variable life insurance contracts,
health insurance contracts, and group insurance contracts.
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supplemental
executive retirement plan (SERP)
A nonqualified deferred compensation retirement plan designed
to provide benefits for a group of executives, without regard
to benefits provided under a qualified retirement plan.
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supplemental
group life insurance
Life insurance over and above the basic coverage provided by a
group policy. The supplemental coverage may provide an additional
amount of the same type of insurance or may provide a different
type of insurance. Supplemental coverage is usually contributory
and subject to stricter underwriting standards than is the basic
group coverage.
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supplemental
major medical insurance
Major medical insurance providing benefits over and above those
benefits paid by basic hospital-surgical expense insurance.
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supplementary
benefit rider
A rider that is added to an insurance policy to provide additional
benefits. Some typical supplementary benefit riders are accidental
death coverage, waiver of premium, and the guaranteed insurance
option. See also rider.
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supplementary
contract
A contract between the insurer and the beneficiary of a life insurance
policy. A supplementary contract is formed when policy proceeds
are applied under a settlement option.
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supplementary
contract with life contingencies (WLC)
A supplementary contract or annuity in which the duration of the
payment period depends on the lifetime of the beneficiary.
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supplementary
contract without life contingencies (WOLC)
A supplementary contract or annuity in which the proceeds of a
life insurance policy are held at interest or paid in installments
over a specified period.
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supplementary
notice
As required by the Fair Credit Reporting Act, notice to a consumer
of the nature and scope of the investigation mentioned in the
pre-notice form that an insurance company has already sent to
the consumer.
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supplementary
statement
Under the NAIC Model Privacy Act, a written statement made by
a person who has been investigated. The supplementary statement
is intended to correct what the investigated person believes to
be incorrect information in his or her file. This statement must
remain with the disputed information in the person's file and
must be made available to anyone reviewing the disputed information.
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surgical
schedule
The part of a health insurance policy that describes the maximum
benefit amounts payable for specified surgical procedures. See
also fee schedule and relative value schedule.
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surplus
The amount by which an insurance company's assets exceed its liabilities
and capital.
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surrender
charge
(1) An amount of money deducted from a policy's reserve to arrive
at the policy's cash value. (2) The expense charges applied when
the owner of a back-loaded policy surrenders the policy for its
cash value.
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surrender
cost index (SCI)
See interest-adjusted cost.
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surrender
cost index (SCI) method
See interest adjusted net cost (IANC) method.
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survivor
income benefit insurance
A type of group life insurance which provides income benefits
if the insured is survived by a "qualified survivor." Usually
the qualified survivor category includes only the insured's spouse
and children.
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survivorship
clause
A life insurance policy provision, inserted at the request of
the policyowner, which provides that the beneficiary must survive
the insured by a stated number of days in order to receive the
death benefit. Also called a delay clause or a time clause.
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survivorship
life insurance
A type of whole life insurance which insures two people and pays
benefits only after the second person dies. It is generally designed
to provide funds to pay estate taxes. Also called second-to-die
life insurance.
