Life Insurance Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

 

Actuary - Someone who uses mathematical analysis of past loss data and other statistics to determine rates and estimate an insurer's future liabilities.

 

Additional Named Insured - Referred to in an insurance policy as one enjoying protection under the policy in addition to the principal named insured.

 

Administration Expense - All costs incurred by an insurer in the conduct of its business other than policy acquisition costs, investment expenses, and loss adjustment expenses.

 

Administrative Cost - Costs related to insurance marketing, utilization review, premium collection, medical underwriting, agents' commissions, insurer profit, claims processing, risk management, and quality assurance programs.

 

Administrative Services Only (ASO) - A fee-based program in which an insurance company or other third-party administrator performs administrative, managerial, or clerical services only and is not exposed to any risk. Services usually include claims processing, but also may include other services, such as actuarial analysis, utilization review, etc. Businesses or self-funded health plans may use an ASO

 

Admitted Insurer – Also known as an authored insurer, an insurer licensed to write specific types of insurance within a particular state.

 

Adverse Selection - The process by which an insurer is left with a disproportionate share of unwanted, higher-risk business. Particularly common in the life and health lines, adverse selection can occur when higher-than-expected claims experience leads an insurer to raise rates, which in turn causes the migration of "good" risks to companies charging less. Adverse selection may be due to improper underwriting and risk selection by the insurer or by superior knowledge of the risk by the insured. Among applicants for a given group or individual program, the tendency for those with an impaired health status, or who are prone to higher-than-average utilization of benefits, to be enrolled in disproportionate numbers and lower deductible plans.

 

Agent - Someone who solicits insurance on behalf of an insurer.

 

Alien Insurer - An insurer domiciled outside the United States that conducts business within the United States.

 

Alternative Market -These entities, comprised of self-insurers, captive insurers and risk retention groups, provide insurance protection in competition with traditional insurance companies.

 

Alternative Minimum Tax (AMT) - Refers to the federal income tax liability of insurers, regardless of whether the insurer earns taxable income using standard calculations.

 

American Association of Managing General Agents (AAMGA) - Based in Kansas City, Missouri, a trade organization representing managing general agents.

 

American Council of Life Insurance (ACLI) – Based in Washington, DC, a trade organization representing primarily the larger life insurers.

 

American Insurance Association (AIA) – Based in Washington, DC, a trade organization representing primarily the larger property-casualty insurers.

 

American Lloyd's - Associations of individual underwriters permitted to operate within a limited number of states within the U.S. These associations have no relationship – legal or other – with Lloyd's of London.

 

Anniversary Date - The anniversary of any given insurance policy's effective date.

 

Annual Statement - A report of an insurer's financial operations filed annually with the insurance regulatory authorities of each jurisdiction in which the insurer is licensed to conduct business. The report includes a balance sheet, as well as detailed schedules and exhibits. Other names include: convention blank or statement, statutory statement, yellow book (for property-casualty insurers) and blue book (for life insurers).

 

Annuitant - Someone who receives payment pursuant to an annuity contract.

 

Annuity - A contract that provides for a fixed or variable periodic payment to a person (the annuitant) made from a stated or contingent date and continued for a specified period, such as for a number of years or for life. An annuity may be bought via installments or by a lump sum payment.

 

Arbitration - A process by which two parties can resolve a dispute without resorting to litigation.

 

Arbitration Clause - A provision in a contract in which the parties agree to arbitrate disputes rather than opting for litigation. Most contracts between insurers and reinsurers contain an arbitration clause to avoid unnecessary litigation.

 

Assessment – The definition of an assessment is twofold: 1. an additional payment that may be required of policyowners of an assessable mutual insurer in the event losses exceed expectations and 2. a charge levied upon insurers by state guaranty funds or other regulatory authorities.

 

Asset-Liability Matching - An investment strategy for insurers in which the asset manager attempts to match the maturities of fixed-income securities to the schedule of claims and other payments anticipated by the insurer.

 

Asset Valuation Reserve (AVR) - A reserve adopted in interim form by the National Association of Insurance Commissioners in December 1991 to replace the Mandatory Securities Valuation Reserve (MSVR). Beginning in 1992, AVR was established as a liability on life insurance statutory financial statements. Life insurers are required to establish statutory reserves for mortgage loans, real estate, equity, and joint ventures, as well as for those investments (fixed maturities and equity) previously subject to MSVR. AVR captures all realized and unrealized gains and losses on such assets.

 

Assigned Risk – Someone whose insurance is provided through an assigned risk pool or plan.

 

Assigned Risk Pool or Plan - A program by which high-risk drivers can obtain automobile insurance if they are unable to in the voluntary markets.

 

Assumed Premiums - Refers primarily to premiums from reinsurance policies issued by an insurer or reinsurer. It can also refer to premiums accepted by an individual company under a pooling arrangement.

 

Assumption of Risk Doctrine - A legal doctrine that provides a defense against a claim of negligence based on the plaintiff's knowledge and voluntary assumption of risk associated with any given activity.

 

Assumption Reinsurance - A transaction in which one insurer transfers its liabilities under existing or in-force contracts to another insurer. The intent of the transfer is to extinguish the assignor's liabilities under the contracts being assigned.

 

Assurance – Synonymous with insurance.

 

Authorized Reinsurance - Reinsurance provided by a reinsurer recognized and deemed legitimate by a particular state regulatory body.

 

Automatic Reinstatement - A provision within a policy that provides for automatic reinstatement of said policy following payment of a loss.

 

B

 

Baby Boom Generation, or Baby Boomers - The generation of 76 million Americans born between the years of 1946 and 1964.

 

Beneficiary - A person named in an insurance policy as the recipient of the proceeds of said policy. Also refers to any person eligible as either a subscriber or a dependent for a managed care service per the terms of the contract.

 

Best Interest Standards – Regulations that require insurers to establish standards and processes to oversee recommendations by agents and brokers to their consumers with respect to life insurance policies and annuity contracts, ensuring that those recommendations are made with the consumer’s needs top of mind.

 

Best Ratings – A set of ratings issued by A. M. Best Company, Inc. - a company that publishes reports on the financial condition and history of individual insurers and provides ratings on most of the insurers doing business in the U.S.

 

Binder - Temporary authorization of coverage issued prior to the effective date of an insurance policy.

 

Book - Refers to an insurer's in-force business, i.e. book of business.

 

Broker - An intermediary financial services provider who represents the insured in its transactions with an insurer and/or shops for coverage on behalf of the insured.

 

Bulk Reinsurance – Refer to Portfolio Transfer.

 

Business Life Insurance – Refer to Key Man Life Insurance.

 

Business Owners Policy (BOP) - A package policy created to meet insurance requirements for small- to mid-sized businesses.

 

C

 

Cancellation – The termination of an insurance policy by the insurer or the insured before the policy reaches its anticipated expiration date.

 

Capacity - The amount of insurance available from a single insurer or from an insurer within a particular market.

 

Captive Agent - An insurance agent – usually an employee of the insurer – who has agreed to provide exclusive representation to one insurer.

 

Captive Insurer - An insurer controlled by one or more insureds, formed for the purpose of insuring risks associated with the activities of its stockholders or members.

 

Carrier – Synonymous with insurer.

 

Cash Surrender Value - The amount of cash available to a policyowner if they choose to surrender a life insurance policy or annuity contract.

 

Cedant - A term that refers to an insurer who has underwritten insurance and transfers all or part of its risk to a third party by purchasing reinsurance; also known as a reinsured.

 

Cede - Purchasing reinsurance.

 

Ceded Premiums – Refers primarily to premiums paid for reinsurance policies and transferred to the reinsurer. Can also refer to premiums transferred by an individual company under a pooling arrangement.

 

Ceding Commission - The amount payable by a reinsurer to a cedant to cover acquisition costs plus an anticipated profit margin.

 

Certificate of Insurance – Formal documentation issued to individuals insured under a group policy setting forth the coverage terms.

 

Cession - Amount of insurance ceded to a reinsurer.

 

Chartered Life Underwriter (CLU) - Someone with at least three years’ worth of experience in the life and health insurance business who has passed a series of ten professional examinations to earn this formal designation.

 

Claim - A demand for payment under an insurance policy for a loss covered within that policy.

 

Claim Department - A team within an insurance organization responsible evaluating and settling insurance claims.

 

Claimant – A person who submits a claim after a loss is suffered.

 

Collateral Assignment - Utilization of a life insurance policy as collateral for a loan.

 

Combined Ratio - The sum of an insurer's loss ratio, expense ratio and policyowner dividend ratio, which is determined in accordance with statutory accounting practices or generally accepted accounting principles. A combined ratio under 100% typically indicates an underwriting profit, while a combined ratio over 100% typically indicates an underwriting loss.

 

Commission - Compensation paid to a producer for generating business; primary insurers may also be paid a commission for ceding business to a reinsurer (see Ceding Commission).

 

Common Law – Used as precedent for deciding future cases, these are legal principles established by the courts.

 

Commute - The procedure of estimating, paying and discharging an insurer's current and future obligations. Frequently, an insurer and a reinsurer will commute their obligations to each other rather than maintain an ongoing relationship.

 

Contingent Beneficiary – Someone who is entitled to receive the proceeds of a life insurance policy if and only if the primary beneficiary dies before the insured.

 

Conversion Annuity - A group annuity contract that was once shared in the payment of dividends as a participating policy, but which subsequently was converted into a non-dividend paying, non-participating policy.

 

Convertible Term Insurance - Term life insurance that is convertible to permanent life insurance without evidence of insurability.

 

Corporate Name – Started in 1994, a new participant in Lloyd's of London where liability is limited, and capital is provided on a corporate basis.

 

Corporate-Owned Life Insurance (COLI) - A life insurance policy intended to cover an employee but is owned by the corporation.

 

Corporation of Lloyd's – A body paid for by all Lloyd’s syndicates that provides administrative support functions for all said syndicates.

 

Coverage – A term inclusive of all protections provided by an insurance policy.

 

Credit Life Insurance - A type of decreasing term insurance that covers the life of a debtor and pays all proceeds to the creditor.

 

Crediting Rate - The interest rate applied to life insurance policies and annuity contracts, whether contractually agreed upon by all parties or declared for a specified period of time.

 

D

 

Death Benefit – Refer to Face Amount.

 

Debit Insurance – Refer to Industrial Life Insurance.

 

Declarations - The section of an insurance policy that outlines important information about both the insured and the coverage provided within said policy.

 

Declination - The official declaration of an insurance policy application being denied or rejected.

 

Decreasing Term Insurance - A type of term life insurance in which benefits will reduce throughout the life of the contract.

 

Deferred Annuity - An annuity that can be paid either with a single premium (SPDA) or with a series of flexible installments that includes a schedule of periodic income benefit payments to begin after an accumulation period of at least one year (FDPA).

 

Demutualization - The procedure by which a mutual company is converted into a stock company.

 

Deposit Term Insurance - A type of term life insurance in which the first year's premium is higher than the successive premiums.

 

Deposits - Payments issued to an insurer that are not included as revenue but instead count towards the policyowner’s account balance.

 

Deviation - A variation from the standard form or published rates of an insurer.

 

Direct Billing - A system in which the insurer rather than the independent agent issues invoices directly to the policyowner.

 

Direct Response Marketing - A method by which to market insurance products through the media, Internet and mail.

 

Direct Writer - An insurer whose products are sold directly to the public by a sales force that consists of employees or exclusive agents of the insurer; it also refers to a reinsurer that provides reinsurance directly to primary companies without using a reinsurance broker as an intermediary.

 

Disability – A condition, either physical or mental, resulting from illness, injury or disease.

 

Disability Income Insurance - A specific type of health insurance that issues payments to a disabled insured to compensate for lost income during periods of disability.

 

Dividends - Amounts payable by an insurer from earnings to policyowners by mutual, reciprocal and stock insurers, and to stockholders by stock insurers.

 

Dividend Options - The different methods available to an insured who has elected to receive dividends under their life insurance policy.

 

Dividend Scales - The actuarial formulas used by life insurers to determine amounts payable as dividends on policies depending on a variety of experience factors, including investment results, lapse rates, premium taxes, mortality, expenses, policy loan interest and utilization rates.

 

Domestic Insurer - An insurer conducting business in the jurisdiction in which it is domiciled.

 

Double Indemnity – Also known as accidental death benefit, a benefit available as an endorsement to certain life insurance policies that provides that twice the face amount of the policy shall be payable if death is accidental.

 

Duty to Defend – According to the terms of an insurance policy, an insurer has a "duty to defend" its insured in a court action, even in instances in which the suit may be false or groundless.

 

E

 

Earned Premiums - The prorated portion of an insurance premium that is no longer counted as prepaid due to the elapsed time in which the policy has been in force.

 

Effective Date – The official date when coverage commences under an insurance policy.

 

Eligibility Date - The official date when a participant's eligibility period starts.

 

Employee Retirement Income Security Act (ERISA) – Enacted in 1974, a federal legislation applicable to most welfare and private pension plans. This legislation aims to protect covered employees by establishing minimum standards for such plans.

 

Employee Stock Ownership Plan (ESOP) - A contribution pension plan that invests primarily in the employer’s securities.

 

Endorsement - An amendment or alteration to an original insurance policy; also known as a rider.

 

Endowment Life Insurance - A type of whole life insurance in which premiums are paid until a fixed date. This fixed date is when the policy matures, and consequently benefits become available to the policyowner.

 

Estoppel - The legal principle by which someone is precluded from denying the truth of one of their previous statements.

 

Exclusion - A provision in an insurance policy that eliminates coverage for certain risks, individuals, classes of property or locations. In an all-risks policy, excluded items are listed explicitly in the policy. In a named-perils policy, exclusions are understood to be all those risks not explicitly listed as being covered.

 

Exclusive Agent - An insurance agent who provides exclusive representation to a single insurer; also known as a captive agent.

 

Expiration Date - The official date when insurance coverage ends under a given policy.

 

Exposure - A unit of measurement for the insurer’s assumed risk.

 

F

 

Face Amount - The payment amount guaranteed on the cover page of a life insurance policy as payable when the insured dies or when the policy matures.

 

Fee Schedule - A listing of established allowances or accepted fees for defined medical procedures. As used in medical care plans, it typically represents the maximum amounts the program will pay for those specified procedures.

 

Field Office - An insurer's branch office.

 

File and Use Laws - Legislation designed to enable insurers to implement rate changes upon filing with insurance regulators. Contrary to prior approval laws, this legislation does not require prior regulatory approval before rate changes may be implemented.

 

Financial Accounting Standards Board (FASB) - A self-regulatory organization that establishes reporting standards and financial accounting.

 

Fixed Annuity - An annuity, either immediate or deferred, where the deposits accumulate at a fixed rate of interest or immediate payments remain constant for the duration of the contract. Also known as "book value" products. The insurance company is liable for payment of the accumulated value less any surrender charge at any time.

 

Flexible Premium Deferred Annuity (FPDA) - An annuity that allows annual premium payments in amounts deemed appropriate by the policyowner; also referred to as a 403(b) annuity from the section of legislation.

 

Fraternal Insurer - A mutual insurer that provides coverage to members of charitable, religious, and fraternal organizations.

 

G

 

General Account – An accumulation of all an insurer's assets except those allocated to a separate account.

 

General Agency System - A life insurance-specific marketing system in which an agent has responsibility for a given geographic area.

 

Generally Accepting Accounting Principles (GAAP) – Accounting standards established by the American Institute of Certified Public Accountants or the Financial Accounting Standards Board and in other recognized accounting literature.

 

Grace Period – A specified period of time given for the payment of an overdue premium before a policy will lapse. The policy remains in force during this interval.

 

Group Annuity - A type of pension plan provided on a group basis, typically for employees within a particular business organization, under which annuities are provided upon retirement.

 

Group Deferred Annuity – As opposed to a single annuity for each employee, a contract for retirement benefits in which an entire group of employees is underwritten.

 

Group Deposit Administration Annuity - A pension plan funding instrument in which contributions paid by an employer accumulate at interest and an immediate annuity is purchased for the employee upon retirement.

 

Group Life Insurance - Life insurance provided on a group basis, typically for employees within a specific business organization, through one master policy.

 

Guaranteed Purchase Option - A provision in a life insurance policy that grants the insured an option to purchase additional life insurance without evidence of insurability.

 

Guaranteed Renewable - A provision in a health insurance policy that grants the insured a policy renewal option for a specified period of time.

 

Guarantor - An entity, like an insurer, that promises to pay an obligation if the obligor fails to do so.

 

H

 

Home Office – An insurer’s official headquarters.

 

I

 

Immediate Annuity - An annuity on which payment begins one period (between 30 days and one year) after purchase.

 

In Force - The aggregated amount of insurance in effect as of the policy’s effective date for the insurer.

 

Inception Date - The date when a policy’s coverage officially commences.

 

Incontestable Clause - A provision in a life insurance policy guaranteeing that the insurer cannot contest a policy once it has been in force two years during an insured's lifetime.

 

Indemnification - Compensating an insured for losses suffered.

 

Indemnitee - The insured individual who is being compensated for their losses.

 

Indemnitor - The insurer who is providing indemnification to someone suffering a loss.

 

Independent Agent - An agent who is not employed by a specific insurer, but who typically represents a number of insurers.

 

Independent Agency System - The system in which independent contractors are granted the right to sell insurance products by insurers.

 

Inside Build-Up - The tax-deferred accumulation value of annuity contracts and permanent life insurance policies.

 

Insurability - The available coverage for an individual applying for insurance.

 

Insurable Interest - The principle that states an insured individual must suffer an actual loss in order to legally make a claim under their insurance policy.

 

Insurance - An arrangement in which an insured pays a premium to an insurer and passes risk and obligations to said insurer.

 

Insured – An individual who purchases insurance (policyowner) or one who enjoys protection under an insurance policy.

 

Insured Life - The individual policyowner on whose life a life insurance policy is issued.

 

Insurer – An individual or entity that provides insurance.

 

Interest-Sensitive Life Products - Life insurance policies in which interest earned in excess of a specified amount is credited to the policy.

 

Intermediary – An agent, broker or other entity through which insurance arrangements are established between insureds and insurers.

 

Invested Assets – An insurance company’s owned assets that are invested in cash, bonds, common and preferred stock, mortgages and real estate.

 

Investment Expense Ratio – The calculated ratio of a particular insurer's investment expenses to net premiums earned.

Investment Expenses - Expenses incurred by an insurer in conjunction with the management of its investment portfolio.

 

Investment-Grade Securities - Refers to fixed-income securities held in an insurer's investment portfolio with a Class (2) or higher rating by the Securities Valuation Office of the National Association of Insurance Commissioners.

 

Irrevocable Beneficiary - The beneficiary for a life insurance policy that cannot be changed by the owner without the beneficiary’s consent.

 

Irrevocable Trust - Non-amendable trust which is both the owner and beneficiary of one or more life insurance policies. Upon the insured’s death, the trustee invests the insurance proceeds and administers the trust for its beneficiaries.

 

J

 

Joint Underwriting Association (JUA) - An organization of insurers operating within a specified state that have joined forces to form a pool to absorb the high-risk automobile insurance business. Losses and expenses are shared on a pro rata basis.

 

Joint and Survivor Benefits - Annuitized payments that provide a guaranteed monthly payment for the remainder of an insured’s lifetime and that ensure income to a surviving spouse.

 

Junk Bonds – Refer to Non-Investment-Grade Securities.

 

K

 

Key Man Life Insurance - A form of life insurance policy that protects a business organization from losses arising from the death or disability of a senior executive or other employee critical to the business’s success.

 

L

 

Lapse - Termination of an insurance policy due to failure to maintain premium payments or lack of sufficient cash value to maintain the policy's in-force status.

 

Lapse Ratio - The face amount of in-force business that lapses in a particular year, calculated as a percentage of in-force business at the beginning of the year.

 

Last to Die - A type of life insurance policy used as an estate planning device in which the benefit is payable upon the second death to occur of two insured lives.

 

Level Commission Life Insurance - A type of life insurance in which commissions remain constant throughout the life of the contract. In said policy, an agent receives a smaller commission in the first year of a policy than is normal for other life insurance products.

 

Level Premium Life Insurance - A type of life insurance in which premium levels remain constant throughout the life of the contract. In said policy, more than the cost of protection is paid in earlier years to compensate for underpayment in later years.

 

License - Certificate of authority issued by a state to an insurance agent or insurer granting permission to act as such within that state.

 

Life Annuity - A type of annuity that generates income during the annuitant's lifetime.

 

Life Expectancy - An estimated average number of years of life remaining for a group of individuals of a particular age, as defined in a mortality table.

 

Life Insurance - A type of insurance on the life of a human being that includes related coverages.

 

LIMRA International – A trade organization based in Farmington, Connecticut that provides research for the life insurance industry. It was previously known as Life Insurance Marketing and Research Association.

 

Life Settlement - The sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit.

 

Living Benefits Rider - An optional provision within a life insurance policy that offers the insured an option to collect all or a portion of available life insurance benefits in the event of terminal or other catastrophic illness.

 

Lloyd's – An insurance marketplace based in London whose underwriting members (or Names) have considerable global influence in property-casualty markets, particularly those dealing with marine and aviation insurance. Approximately one-third of Lloyd's premiums is derived from the U.S.

 

Loss Ratio - The calculated ratio of incurred losses and loss adjustment expenses to earned premiums; can also refer to individual components. The ratio of incurred losses to earned premium is the Pure Loss Ratio.

 

Lump Sum - Money issued in a single payment rather than being broken out in installments.

 

Lump Sum Distribution - A specifed contribution plan participant's taking the assets in their account as a single sum, instead of as an annuity (upon retirement) or rolling the assets over into an IRA or a new employer's plan.

 

M

 

Managing Agent - The agency support mechanism behind Lloyd’s syndicates that employs the underwriting staff and maintains compliance with Lloyd's rules.

 

Managing General Agent (MGA) - An agent who produces and underwrites business for an insurer and either adjusts or pays claims or negotiates reinsurance on the insurer’s behalf.

 

Mature – A life insurance policy whose face amount has become payable.

 

Mortality Table - A statistical listing of life expectancy for various age groupings, normally expressed as deaths per thousand.

 

Mutual Insurance Company - An insurance company owned by its policyowners unlike a stock insurance company, which is owned by its stockholders.

 

N

 

Named Insured - The insured specifically referred to in an insurance policy as one covered by the protections under the policy.

 

National Association of Insurance Commissioners (NAIC) – Founded in 1871, an organization based in Kansas City, Missouri of state insurance commissioners who study insurance regulatory affairs and assist state insurance departments in enacting their regulatory responsibilities.

 

National Association of Life Companies (NALC) – A trade organization based in Washington, DC that represented primarily the smaller life insurers; merged with the American Council of Life Insurance in 1992.

 

National Association of Mutual Insurance Companies (NAMIC) – A trade organization based in Indianapolis, Indiana representing mutual property-casualty insurers.

 

National Association of Professional Insurance Agents (PIA) – A trade organization based in Alexandria, Virginia representing independent insurance agents.

 

Natural Death – A death that is unrelated to an accident or war.

 

Negligence - Failure to act as a prudent and reasonable person would under similar circumstances.

 

Nonparticipating Policy - A policy that does not entitle a policyowner to receive dividends from the insurer’s surplus.

 

Nonstandard Risk - A policyowner with above-average loss experience and higher-than-average loss frequency potential; used most often to refer to purchasers of automobile insurance.

 

O

 

Ordinary Life Insurance - A type of whole life insurance for which premiums are paid throughout the insured's lifetime.

 

Override - A type of commission paid to an intermediary by an insurer, such as a managing general agent, for generating business.

 

P

 

Paid-up Insurance - An insurance policy for which all required premiums payments have been issued.

 

Participating Policy - A policy that entitles a policyowner to receive dividends from the surplus of an insurer to the extent that dividends are declared by its board of directors.

 

Periodic Payment - Payments made on a recurring interval (weekly, monthly, etc.) over the life of a benefit plan.

 

Permanent Life Insurance - Any forms of life insurance with the exception of term insurance.

 

Persistency - The rate of renewal for insurance policies. A high persistency rate means that a a majority of policies stay in force until the end of the policy term; a low persistency rate means that a majority of policies lapse.

 

Policy – An annuity contract or insurance policy issued by an insurer.

 

Policy Acquisition Costs - Direct expenses related to an insurer's acquisition and retention of business, including brokers’ and agents' commissions, premium taxes, and marketing and underwriting expenses.

 

Policy Jacket - The outside cover of an insurance policy where the policy’s common provisions are listed.

 

Policy Loan - A provision in a life insurance policy granting the policyowner the right and the option to borrow the policy's cash value.

 

Policyholder/Policyowner – An individual or entity in whose name an insurance policy has been issued.

 

Policyholder Dividend - The surplus payable to a policyowner as declared by an insurer's board of directors.

 

Policyholders' Surplus - The money remaining after an insurer's liabilities are subtracted from its admitted assets, applying statutory accounting practices.

 

Preferred Risk - An insurable interest predicted to have a better or lower-than-average loss experience; generally, pay lower premiums than standard risks.

 

Premium – Payment issued to an insurer in consideration of the insurance coverage being provided.

 

Premium Financing - The strategy by which a qualified borrower accesses third-party financing to pay for hefty life insurance premiums. Insurance companies have constructed specific products for these financed plans to minimize outside collateral and maximize returns.

 

Primary Beneficiary – An individual entitled to receive the proceeds of a life insurance policy on a priority basis.

 

Proceeds – Payable amount from an insurance policy.

 

Producer - Someone who originates insurance business such as an agent.

 

Pure Risk - A risk that a loss may or may not occur but will certainly not result in a gain; as opposed to a speculative risk, which could possibly result in either a loss or a gain. Pure risks are generally insurable, whereas speculative risks (i.e. gambling) are not.

 

Q

 

Qualified Annuity - Products whose deposits or premiums can be made with pretax dollars.

 

R

 

Rated Policy - An insurance policy issued at a higher premium rate to cover risks that can be potentially severe.

 

Rating Agencies – Organizations that provide credit opinions and analysis of financial institutions, including insurers.

 

Reinstatement - The process by which a lapsed policy is restored by the issuing payment for an overdue premium.

 

Reinsurance - An arrangement in which the insurer passes risk and obligations to a different insurer.

 

Reinsured - The term referring to an insurer that has transferred all or part of its underwritten risk to a third party by purchasing reinsurance; also known as a Cedant.

 

Reinsurer - The insurer that assumes reinsurance risk.

 

Renewable Term Insurance - Term life insurance that, by its provisions, is renewable for a specified number of additional terms by the policyowner without evidence of insurability.

 

Return Premium - Premium that has been issued to an insurer but has not been earned and is returned to the insured when the policy is canceled or the terms of the policy are modified, thus reducing the amount of premium due.

 

Revocable Beneficiary – The opposite of an irrevocable beneficiary; the beneficiary under a life insurance policy whose designation as beneficiary can be changed at the discretion of the policy owner without said beneficiary’s consent.

 

Risk - The possibility of loss.

 

Risk Transfer - The process by which one party transfers responsibility for losses to another party, such as from an insured to an insurer.

 

S

 

Savings Bank Life Insurance (SBLI) - Life insurance policies sold over-the-counter by mutual savings banks in a limited number of states.

 

Separate Account- An investment account maintained by an insurer to which funds have been allocated; a separate account is maintained independently from an insurer's general account and other separate accounts.

 

Single-Premium Deferred Annuity (SPDA) - An annuity that requires a one-time lump sum premium payment upon commencement of the contract.

 

Split Dollar Life Insurance - A type of whole life insurance in which two individuals, typically an employer and employee, share the responsibility of paying premiums.

 

Straight Life Insurance – Standard, ordinary life insurance.

 

Suicide Clause - A provision in a life insurance policy stating that an insurer will not pay any claims within a policy if the insured commits suicide within two years after the policy is issued. Instead, the premium is returned.

 

Surrender - The withdrawal of a life insurance policy’s cash value.

 

Surrender Charge - The fee charged to a policyowner when their life insurance policy or annuity contract is surrendered for its cash value.

 

T

 

Term – The definition of a term is twofold: the period of time for which an insurance policy is effective and in force OR a provision within a life insurance policy.

 

Term Life Insurance - Life insurance protection that pays the sum insured if and only if the insured dies within the coverage terms of the policy.

 

Third-Party Administrator (TPA) - A service provider engaged in administrative, clerical and managerial functions related to insurance policies and/or employee benefit plans.

 

U

 

Under-insurance - Failure to maintain sufficient insurance coverage.

 

Underwriter – Synonymous with insurer or an employee of an insurance company whose responsibilities include reviewing applications submitted for insurance coverage, deciding whether to accept or reject all or part of the coverage requested and adjusting the terms of coverage.

 

Underwriting - The process by which applications for insurance coverage are reviewed, determining whether to accept or reject all or part of the coverage requested and adjusting the terms of coverage.

 

Underwriting Expense - Administrative, general and other expenses accrued by an insurer's underwriting operations.

 

Unearned Premiums - The portion of an insurer's premiums attributable to the unexpired period of policies.

 

Unisex Rating - A rating formula required in particular jurisdictions that forbids the use of sex as a separate rating factor.

 

Universal Life Insurance - A flexible-premium life insurance policy that permits the policyowner to modify the death benefit and change the amount or timing of premium payments.

 

V

 

Variable Annuity - An annuity under which the annuitant's payments will change, dependent on the results of an investment portfolio or according to a formula prescribed in the annuity contract.

 

Variable Life Insurance - Life insurance policies under which the benefits will vary, depending upon the investment experience of a separate account supporting said policy.

 

Viatical Settlement Companies - Companies that arrange life settlements via cash payments for the life insurance of terminally ill policyowners. These companies provide early payouts for the policyowner, assume the premium payments on the purchased policies and collect the face value upon the death of the insured.

 

W

 

Waiver of Premium Provision - A provision within a life insurance policy guaranteeing that, upon the total disability of the insured, the premium payments shall be waived.

 

Whole Life Insurance - Permanent life insurance offering guaranteed death benefits and cash values.

 

Y

 

Yellow Book – Refer to Annual Statement.