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The irrevocable transfer of all the policy owner’s rights in a life insurance policy.
Accelerated Death Benefit Rider
Rider that allows payment of a por tion of the face amount prior to the death of the insured, if the insured is diagnosed with a terminal illness or injury.
Assent by an offeree to the terms of an offer.
Accident and Health Insurance
A type of coverage that pays benefits, sometimes including reimbursement for loss of income, in case of sickness, accidental injury, or accidental death.
An event or occurrence that is unforeseen and unintended.
Accidental Death Benefit
A feature of a life insurance policy provid ing an additional benefit if the insured dies in an accident. Because the face amount of the policy is often doubled under this provision, it is also called a double indemnity.
The insurer’s cost of putting new business in-force, including the agent’s commission, the cost of clerical work, fees for med ical examinations and inspection reports, sales promotion expense, etc.
The authority to act on the principal’s behalf that an agent reasonably believes he or she has been given by the principal. Actual authority can be express or implied.
The price for insurance that exactly represents the expected losses.
Mathematician employed by an insurance company to calculate premiums, reserves, dividends, and insurance, pension, and annuity rates, using risk factors obtained from experience tables. These tables are based on both the company’s history of insurance claims and other industry and general statistical data.
An assured party specifically named under an insurance policy
Adhesion, Contract of
A contract that is drafted by one party and accepted or rejected by the other, with no opportunity to bargain with respect to its terms.
Adjustable Life Insurance
A type of insurance that allows the policy holder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium, and lengthen or shorten the protection period.
Adjusted Gross Estate
Approximately the net worth of the deceased—the beginning point for the computation of estate taxes.
A person who investigates and settles losses for an insurance carrier.
The process of investigating and settling losses with or by an insurance carrier.
Organization for adjusting insurance claims that is supported by insurers using the bureau’s services.
Assets allowed by state regulatory authorities and by the National Association of Insurance Commissioner for statutory accounting statements. Only the value of the admitted assets may be shown on the statutory balance sheet. (See also Non-admitted Assets).
The tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance to a greater extent than do persons with average or better-than-average expecta tions of loss.
Age based on the individual’s current age or their age on their last birthday.
Stipulated minimum and maximum ages below and above which the company will not accept applications or may not renew policies.
Age based on the individuals nearest birthday. If the indi vidual is more than 6 months or 182 days into their birthday year, the birthday would be treated as if it had already occurred that year (also referred to as Insurance Age).
An insurance company representative licensed by the state, who solicits, negotiates, or effects contracts of insurance, and provides service to the policyholder for the insurer.
An insurance company domiciled in another country.
A formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policyholder or his authorized representative.
The annual report, as of December 31, of an insurer to a state insurance department, showing assets and liabilities, receipts and disbursements, and other financial data.
The tendency of persons who present a poorer-than average risk to apply for, or continue, insurance to a greater extent than do persons with average or better-than-average expectations of loss.
Agency authority a person has because a principal has created the appearance of authority to a third person.
A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.
All funds, property, goods, securities, rights of action, or resources of any kind owned by an insurance company. Statutory accounting, however, excludes non-admitted assets, such as deferred or overdue premiums, that would be considered assets under gener ally accepted accounting principles (GAAP).
The passing of beneficial rights from one party to another. A policy or certificate of insurance cannot be assigned after interest has passed unless an agreement to assign was made or implied prior to the passing of interest. An assignee acquires no greater rights than were held by the assignor, and a breach of good faith by the assignor is deemed to be breach on the part of the assignee.
An endorsement to an insurance contract stat ing that reinsurance proceeds will be paid directly to the named payee in the event of an insurer’s insolvency.
Assumption of Risk Doctrine
Defense against a negligence claim that bars recovery for damages if a person understands and recognizes the danger inherent in a particular activity or occupation.
The age of the insured at the time of renewal (current age).
Automatic Premium Loan
Cash borrowed from a life insurance policy’s cash value to pay an overdue premium after the grace period for paying the premium has expired.
An agreement that the insurer must cede and the reinsurer must accept all risks within certain explicitly defined limits. The reinsurer undertakes in advance to grant reinsurance to the extent specified in the agreement in every case where the ceding company accepts the application and retains its own limit.
The allegation that insurers have failed to act in good faith, i.e., that they have acted in a manner inconsistent with what a reason able policyholder would have expected.
An amount attributed to an asset for income tax purposes; used to determine gain or loss on sale or transfer; used to determine the value of a gift.
The person named in the policy to receive the insurance proceeds at the death of the insured. A secondary or contingent beneficiary will receive the proceeds if the primary beneficiary cannot collect.
The amount payable by the insurance company to a claimant, assignee, or beneficiary under each coverage.
A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.
A receipt given for a premium payment accompanying the application for insurance. If the policy is approved, this binds the company to make the policy effective from the date of the receipt.
Branch Office System
Type of life insurance marketing system under which branch offices are established in various areas. Salaried branch managers, who are employees of the company, are responsible for hiring and training new agents.
Breach of Contract
The failure of a party to perform a promise accord ing to its terms, without a legal excuse.
A policy that primarily provides coverage of benefits to a business as contrasted to an individual. It is issued to indemnify a business for the loss of services of a key employee or a partner who becomes disabled.
Business Life Insurance
Life insurance purchased by a business enterprise on the life of a member of the firm. It is often bought by partner ships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee.
An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner’s share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability.
The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.
The amount of capital available to an insurance company or to the industry as a whole for underwriting general insurance cover age or coverage for specific perils.
Capital Retention Approach
A method used to estimate the amount of life insurance to own. Under this method, the insurance proceeds are retained and are not liquidated.
Capital Stock and Surplus
Represents the excess of a company’s assets over its liabilities as reported in its financial statements. Stock companies have capital stock and surplus. Capital stock represents funds paid into the company by stockholders. Surplus represents the remain ing excess of assets over liabilities. Mutual companies only have sur plus since there are no stockholders in a mutual company.
Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive range of employee benefits, such as pensions, life insurance, health insurance, and credit unions.
Cash Surrender Value
The amount payable if a life insurance policy is canceled by the insured before it either matures or is payable on death.
To transfer risk from a direct insurer to his reinsurer.
One who cedes a risk to his reinsurers or retroces sionaires.
Amount of the insurance ceded to a reinsurer by the original insuring company in a reinsurance operation.
Chartered Life Underwriter (CLU)
An individual who has attained a high degree of technical competency in the fields of life and health insurance and who is expected to abide by a code of ethics. Must have minimum of three years of experience in life or health insurance sales and have passed ten professional examinations administered by The American College.
Rider that provides insurance to the insured’s child(ren).
A request for payment of a loss, which may come under the terms of an insurance contract.
The first or third party. That is any person who asserts right of recovery.
See Chartered Life Underwriter.
A temporary transfer of some, but not all, policy rights to a lender to provide security for a loan.
Basically, a measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.
The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing the insurance.
A state officer who administers the state’s insurance laws and regulations. In some states, this regulator is called the director or superintendent of insurance.
Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.
A receipt given for premium payments accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of the prepayment or the date on which the last of the underwriting requirements, such as a medical examination, has been fulfilled.
The attempt by the insurer to prevent the lapse of a policy.
One of the elements for a binding contract. Consideration is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policyholder in the application.
A court action challenging the validity of a policy.
The person to succeed as owner of a life insurance policy if the original owner dies.
The portion of civil law that interprets written agreements between parties and resolves disputes between them.
A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.
The principle under which divisible surplus is distributed among policies in the same proportion as the policies are considered to have contributed to that surplus.
A privilege granted in an insurance policy to convert to a different plan of insurance without providing evidence of insurability.
Convertible Term Insurance
Term insurance that can be exchanged, at the option of the policyholder and without evidence of insurability, for another plan of insurance. Credit life insurance is term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase, or other obligation, in case of death.
An amount attributed to an asset for income tax purposes; used to determine gain or loss on a life insurance contract to determine the value of a gift.
Cost of Living Rider
Benefit that can be added to a life insurance policy under which the policy owner can purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.
Cost of Pure Risk
All costs related to pure risk, which includes, from the perspective of shareholders, retained risk, loss prevention costs, insurance costs, and more.
The scope of protection provided under a contract of insurance; any of several risks covered by a policy.
Critical illness insurance
Provides a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurance policy.
Cross Liability Clause
Obligates an insurer to protect each insured separately.
Cross Purchase Agreement
Specifies the terms for the surviving partners or shareholders to buy a deceased’s share of the business’s ownership.
Customer service representatives support the work of insurance agents with a variety of tasks that must be done within a company or agency to deliver services to and handle requests from clients.
The total amount paid over the course of a specified amount of years.
Current Assumption Whole Life Insurance
Nonparticipating whole life policy in which the cash values are based on the insurer’s current mortality, investment, and expense experience. An accumulation account is credited with a current interest rate that changes over time. Also called interest-sensitive whole life insurance.
Current with Re-entry Premiums
Applicable to certain term life insurance policies; non-guaranteed premiums at the time of re-entry.
A payment made to a designated beneficiary upon the death of the employee annuitant.
Statements in an insurance contract that provide information about the property or life to be insured and used for underwriting and rating purposes and identification of the property or life to be insured.
The insurer’s refusal to insure an individual after careful evaluation of the application for insurance and any other pertinent factors.
Defense Base Act (DBA)
Arrangements by which compensation to employees for past or current services is postponed until some future date.
The process of changing the legal structure of an insurance company from a mutual form of ownership to a stock form of ownership.
Designed to pay a portion of the costs associated with dental care.
The premium deposit paid by a prospective policy holder when an application is made for an insurance policy. It is usually equal, at least, to the first month’s estimate premium and is applied toward the actual premium when billed.
Deposit Term Insurance
A form of term insurance, not really involving a “deposit,” in which the first-year premium is larger than subsequent premiums. Typically, a partial endowment is paid at the end of the term period. In many cases the partial endowment can be applied toward the purchase of a new term policy, or, perhaps, a whole life policy.
A procedure under a policy’s dividends that directly reflects earnings on borrowed and non-borrowed values of that policy.
Direct Response System
A marketing method where insurance is sold without the services of an agent. Potential customers are solicited by advertising in the mail, newspapers, magazines, television, radio, and other media.
Method of selling insurance directly to insureds through a company’s own employees, through the mail, the Internet, or at airport booths.
A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly income, if the policy holder becomes totally and permanently disabled.
A physical or a mental impairment that substantially limits one or more major life activities of an individual. It may be partial or total. (See Partial Disability; Total Disability.)
The duty of the insured and his broker to tell the underwriter every material fact before acceptance of the risk.
Loss of body members (limbs), or use thereof, or loss of sight due to injury.
An amount of paid-up insurance purchased with a policy dividend and added to the face amount of the policy.
A policyholder’s share in the insurer’s divisible surplus fund apportioned for distribution, which may take the form of a refund of part of the premium on a participating policy.
Represents that portion of a company’s earnings for the year that have been designated for distribution as dividends to policy owners.
Doctrine of Reasonable Expectations
A legal doctrine that holds policies will be interpreted according to how a reasonable person who is not trained in the law would expect.
An insurance company is a domestic company in the state in which it is incorporated.
The person making a gift.
A policy provision usually associated with death, which doubles payment of a designated benefit when certain kinds of accidents occur.
That portion of a policy’s premium payment for which the protection of the policy has already been given. For example, an insurance company is considered to have earned 75% of an annual premium after a period of nine months of an annual term has elapsed.
Special type of participating whole life insurance in which the dividends are used to buy term insurance or paid-up additions equal to the difference between the face amount of the policy and some guaranteed amount.
The date on which the insurance under a policy begins.
the sum of these two elements: (1) shareholders’ equity considering the assets at market value and (2) in-force life insurance business valued at the present value of future after-tax statutory profits.
An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract.
Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.
Entire Contract Clause
Provision in life insurance policies stating that the life insurance policy and attached application constitute the entire contract between the parties.
Entity Purchase Agreement
Specifies the terms for the business to buy back a deceased’s share of the business’s ownership.
Equity in the Unearned Premium Reserve
Amount by which an unearned premium reserve is overstated because it is established on the basis of gross premium rather than net premium.
Developing a plan to transfer all of your property from one generation to the next or within a generation.
The assets and liabilities of a person left at death.
Evidence of Insurability
Any statement of proof of a person’s physical condition and/or other factual information affecting his/her acceptance for insurance.
An agent who is employed by one and only one insurance company and who solicits business exclusively for that company.
The ratio of a company’s operating expenses to premiums.
Unit of measurement used in insurance pricing.
Extended Term Insurance
A form of insurance available as a non-forfeiture option. It provides the original amount of insurance for a limited period of time.
The amount stated on the policy that will be paid at death or maturity. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the use of policy dividends.
The premium level that is just sufficient to fund an insurer’s expected costs and provide insurance company owners with a fair return on their invested capital.
Family Income Policy
Special life insurance policy combining decreasing term and whole life insurance that pays a monthly income of $10 for each $1,000 of coverage if the insured dies within the specified period. The monthly income is paid to the end of the period, at which time the face amount of insurance is paid.
A life insurance policy providing insurance on all or several family members in one contract, generally whole life insurance on the principal breadwinner and small amounts of term insurance on the other spouse and children, including those born after the policy is issued.
A person who holds something in trust for another.
Fixed Amount Option
Life insurance settlement option in which the policy proceeds are paid out in fixed amounts.
Fixed expenses are those not directly related to a policy (a premium tax, for example is a direct expense, as is the payment of a commission associated with the sale of a policy). Includes: advertising, accounting, planning, rent, computer facilities, etc. These expenses must be allocated to each “block” of policies sold and the distribution is discretionary and can be critical. Some insurers assume too many (or too few) policies will be sold, thereby reducing (or increasing) the fixed expense factor assumed in the pricing of the policy. This may lead to lower credits or increased policy charges.
Fixed Period Option
Life insurance settlement option in which the policy proceeds are paid out in fixed amounts.
Flexible Premium Policy or Annuity
A life accident policy or annuity under which the policyholder or contract holder may vary the amounts or timing of premium payments.
Flexible Premium Variable Life Insurance
A life insurance policy that combines the premium flexibility feature of universal life insurance with the equity-based benefit feature of variable life insurance.
An insurer is a foreign company in any state other than the one in which it is incorporated.
Unforeseen and unexpected loss that occurs as a result of chance.
Insurance under individual contracts issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premiums and remit them to the insurer. The insurer usually agrees to waive its right to discontinue or modify any individual policy, unless it simultaneously discontinues or modifies all other policies in the same group.
Fraternal Life Insurance
Life insurance provided by fraternal orders or societies to their members.
A social organization that provides insurance for its members.
Free Look Period
Time during which the policyholder may return the policy if he/she is not completely satisfied and receive a complete refund. The customary length of time for a “free look” is 30 days.
A domestic insurance company that provides claims or administrative services to a captive.
Future Increase Option
A provision found in some policies that allows the insured to purchase additional disability income insurance at specified future dates regardless of the insured’s physical condition.
General Agency System
Type of life insurance marketing system in which the general agent is an independent businessperson who represents only one insurer, is in charge of a territory, and is responsible for hiring, training, and motivating new agents.
General Liability Insurance
Protects you from damage done to someone else’s property by your operations, as well as injuries sustained at your place of business.
Generation Skipping Tax
A transfer tax imposed on gift or inheritance to those at least two generations younger than the person making the transfer.
A voluntary transfer of property to another person, made without receiving consideration in return.
A period of time after a premium due date, usually 30 or 31 days, during which an insurance policy remains in-force and the overdue premium may be paid without penalty.
Graded Commission Scale
A commission scale providing for payment of a high first-year commission and lower renewal commissions.
All of the assets and liabilities owned at death.
The full amount of premium, ignoring taxes or deductions.
The sum of the pure premium and a loading element.
A contract of insurance made with an employer or other entity that covers a group of persons identified as individuals by reference to their relationship to the entity.
Group Creditor Life Insurance
Life insurance provided to debtors by a lending institution to provide for the cancellation of any outstanding debt should the borrower die. Normally term insurance limited to the amount of the loan.
Group Life Insurance
Life insurance usually without medical examination, on a group of people under a master policy. It is typically issued to an employer for the benefit of employees or to members of an association, for example a professional membership group. The individual members of the group hold certificates as evidence of their insurance.
Group Ordinary Life Insurance
Group insurance plan providing life insurance for employees. Traditional whole life policy is split into decreasing insurance protection and increasing cash values.
Group Paid-Up Life Insurance
Accumulating units of single premium whole life insurance and decreasing term insurance, which together equal the face amount of the policy. Provided through a group life insurance plan.
Group Permanent Plan
Type of pension plan in which cash value life insurance is issued on a group basis and cash values in each policy are used to pay retirement benefits when a worker retires.
Group Term Life Insurance
Most common form of group life insurance. Yearly renewable term insurance on employees during their working careers.
Group Universal Life Products (GULP)
Universal life insurance plans sold to members of a group, such as individual employees of an employer. There are some differences between GULP plans and individual universal life plans; for instance, GULP expense charges generally are lower than those assessed against individual policies.
Guaranteed Insurability Option
See Future Increase Option.
An option that permits the policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.
Guaranteed Investment Contract (GIC)
An investment contract with an insurer in which the insurer guarantees both principal and interest on a pension contribution.
The guaranteed maximum payment for the purchased policy.
Guaranteed Purchase Option
Benefit that can be added to a life insurance policy permitting the insured to purchase additional amounts of life insurance at specified times in the future without requiring evidence of insurability.
Guaranteed Renewable Contract
A contract that the insured person or entity has the right to continue in-force by the timely payment of premiums for a substantial period of time, during which period the insurer has no right to make unilaterally any change in any provision of the contract, while the contract is in-force, other than a change in the premium rate for classes of policyholders.
A fund, derived from assessments against solvent insurance companies, to absorb losses of claimants against insolvent insurance companies.
Home Service Life Insurance
Industrial life insurance and monthly debit ordinary life insurance contracts that are serviced by agents who call on the policy owners at their homes to collect the premiums. The amount of life insurance per policy is generally larger than $1,000.
Human Life Value
For purposes of life insurance, the present value of the family’s share of the deceased breadwinner’s future earnings.
Life policies provide that, except for non-payment of premiums and certain other circumstances, the policy shall be incontestable after the policy has been in-force for two years during the life time of the insured.
A policy provision in which the company agrees not to contest the validity of the contract after it has been in-force for a certain period of time, usually two years.
Incurred but not reported (IBNR) Reserves
Liability account on an insurer’s balance sheet reflecting claims that are expected based upon statistical projections but which have not yet been reported to the insurer.
Incurred claims equal the claims paid during the pol icy year plus the claim reserves as of the end of the policy year, minus the corresponding reserves as of the beginning of the policy year. The difference between the year end and beginning of the year claim reserves is called the increase in reserves and may be added directly to the paid claims to produce the incurred claims.
Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.
Indemnity is the legal principle that ensures that a policy holder is restored to the same financial position after the loss as he was in immediately prior to the loss.
Independent Agency System
Type of property and liability insurance marketing system, sometimes called the American agency system, in which the agent is an independent businessperson representing several companies. The agency owns the expirations or renewal rights to the business, and the agent is compensated by commissions that vary by line of insurance.
An independent businessperson who usually represents two or more insurance companies in a sales and service capacity and who is paid on a commission basis.
Indeterminate Premium Whole Life Insurance
Nonparticipating whole life policy that permits the insurer to adjust premiums based on anticipated future experience. Initial premiums are guaranteed for a certain period. After the initial guaranteed period expires, the insurer can increase premiums up to some maximum limit.
Adjusting of values over time to reflect the impact of inflation.
A contract of health insurance made with an individual called the policyholder or the insured, which normally covers such individual and, in certain instances, members of his family.
Policies that provide protection to the policy holder and/ or his/her family. Sometimes called Personal Insurance as distinct from group and blanket insurance.
Industrial Life Insurance
Life insurance issued in small amounts, usually less than $1,000, with premiums payable on a weekly or monthly basis. The premiums are generally collected at the home by an agent of the company. Sometimes referred to as debit insurance.
A tax on the right of an heir to receive property at the death of another.
In life insurance, the reserve at the beginning of any policy year.
Having insufficient financial resources (assets) to meet financial obligations (liabilities).
A report (usually written) of an investigation of an applicant, conducted by an independent agency that specializes in insurance investigations. The report covers such matters as occupation, financial status, health history, and moral problems.
Acceptability to the company of an applicant for insurance.
The insured’s financial interest in the subject matter of the insurance. A policy where the insured is without such interest is unenforceable.
The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not under the control of the insured, (b) there must be a large number of homogeneous exposures subject to the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible, (d) the peril must be unlikely to affect all insureds simultaneously, and (e) the loss produced by a risk must be definite and have a potential to be financially serious.
Age based on the individual’s nearest birthday. If the individual is more than 6 months or 182 days into their birthday year, the birthday would be treated as if it had already occurred that year (also referred to as Age Nearest).
The top insurance regulatory official in a state.
Any corporation primarily engaged in the business of furnishing insurance protection to the public.
The representative of a state insurance department assigned to participate in the official audit and examination of the affairs of an insurance company.
Insurance Guaranty Funds
State funds that provide for the payment of unpaid claims of insolvent insurers.
(1) A means whereby the losses of the few are distributed over the many. (2) A system under which individuals, businesses, and other organizations or entities, in exchange for payment of a sum of money (a premium), are guaranteed compensation for losses resulting from certain perils under specified conditions.
A person or organization covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.
The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged primarily in the business of furnishing insurance to the public.
That part of an insurance contract that states the promises of the insurer.
The clause that sets forth the type of loss being covered by the policy and the parties to the insurance contract.
Inter Vivos Trust
A trust created while the creator of the trust is living. Also known as a living trust.
New Money Method: A method under which for purposes of crediting interest under the company’s dividend scale or other nonguaranteed pricing structure, the company’s policies are subdivided into generations based on year(s) of issue. “e crediting rate is determined separately for each generation. Each crediting rate is based on the investment premiums are generally collected at the home by an agent of the company. Sometimes referred to as debit insurance.
Interest Maintenance Reserve (IMR)
A statutory accounting method adopted by the National Association of Insurance Commissioners that is designed to capture all realized fixed income investment capital gains and losses resulting from the changes in the overall level of inter est rates and amortize them over the remaining original investment period.
Life insurance settlement option in which the principal is retained by the insurer and interest is paid periodically.
Interest Rate Insurance
Protects the holder from adverse changes in interest rates, for instance for those with a variable rate loan or mortgage.
Method of determining cost to an insured of a life insurance policy that considers the time cost of money by applying an interest factor to each element of cost. See also net payment cost index; surrender cost index.
Money paid for the use of money.
Without a will.
The income generated by a company’s portfolio of investments (such as in bonds, stocks, or other financial ventures).
Beneficiary designation allowing no change to be made in the beneficiary of an insurance policy without the beneficiary’s consent.
A trust in which the creator does not reserve the right to reacquire the trust property.
The age of the insured at the time the policy is being issued.
A form of joint property ownership with right of survivorship, i.e., in which the survivors automatically own the share of a deceased co-owner.
A risk involving exceptionally high benefits.
Jumping Juvenile Insurance Policy
Life insurance purchased by parents for children under a specified age. Provides permanent life insurance that increases in face value five times at age twenty-one with no increase in premium.
Key Person Insurance
Insurance designed to protect a business firm against the loss of income resulting from the death or disability of a key employee.
Kidnap and ransom insurance
Lapse Supported Pricing
A pricing structure that uses gains from terminated policies to support subsequent values of policies remaining in-force. If policy lapses are lower than assumed, the pricing will prove to be inadequate for the persisting policies in that block.
The termination or discontinuance of an insurance policy due to nonpayment of a premium.
A policy terminated for non-payment of premiums. The term is sometimes limited to a termination occurring before the policy has a cash or other surrender value.
Law of Large Numbers
Concept that the greater the number of exposures, the more closely will actual results approach the probable results expected from an infinite number of exposures.
Legal Reserve Life Insurance Company
A life insurance company operating under state insurance laws specifying the minimum basis for the reserves the company must maintain on its policies.
The minimum reserve that a company must keep to meet future claims and obligations as they are calculated under the state insurance code.
Level Commission Scale
A commission scale providing for payment of commissions at the same rate every year the policy is in-force.
Level Premium Life Insurance
Life insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The overpayments in the early years, together with the interest that is earned, serve to balance out the underpayments of the later years.
A premium that remains unchanged throughout the life of a policy.
Any legally enforceable obligation. Also, funds required for payment of future claims and expenses, including Asset Valuation Reserve.
The average number of years of life remaining for a group of persons of a given age according to a particular mortality table.
Life Income Option
Life insurance settlement option in which the policy proceeds are paid during the lifetime of the beneficiary. A certain number of guaranteed payments may also be payable.
Life Insurance In-force
The sum of the face amounts, plus dividend additions, of life insurance polices outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.
Life Insurance Programming
Systematic method of determining the insured’s financial goals, which are translated into specific amounts of life insurance, then periodically reviewed for possible changes.
Insurance providing for payment of a specified amount on the insured’s death, either to his or her estate or to a designated beneficiary; or in the case of an endowment policy, to the policyholder at a specified date.
Limited Payment Life Insurance
Whole life insurance on which premiums are payable for a specified number of years or until death if death occurs before the end of the specified period.
Dissolving a company by selling its assets for cash.
Living Benefits Rider
A rider that allows insureds who are terminally ill or who suffer from certain catastrophic diseases to collect part of their life insurance benefits before they die, primarily to pay for the care they require.
A trust created while the creator of the trust is living. Also known as an inter vivos trust.
Lloyd’s of London
Insurance marketplace where brokers, representing clients with insurable risks, deal with Lloyd’s underwriters, who in turn represent investors. The investors are grouped together into syndicates that provide capital to insure the risks.
The amount that must be added to the pure premium for expenses, profit, and a margin for contingencies. See Expense Loading.
The amount that can be borrowed at a specified rate of interest from the issuing company by the policyholder, using the value of the policy as collateral. In the event the policyholder dies with the debt partially or fully unpaid, then the amount borrowed plus any interest is deducted from the amount payable.
Any measure that reduces the probability or frequency of a particular loss but does not eliminate completely all possibility of that loss.
A ratio calculated by dividing claims into premiums. It may be calculated in several different ways, using paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and with or without changes in active reserves.
Loss Reserve Development
How the latest estimate of an insurance company’s claim obligations compares to an earlier projection.
The amount set up as the estimated cost of a claim. See IBNR Reserve.
A claim under a policy. The financial loss caused to the insured by the happening of the event insured against.
Payment within one taxable year of the entire balance payable to an employee from a trust, which forms part of a qualified pension or employee annuity plan on account of that per son’s death, separation from service or attainment of age 59.
Mail Order Insurer
Type of insurance company that sells policies through the mail or other mass media, eliminating need for agents.
Master Policy (or Master Contract)
The policy issued to a group policyholder setting forth the provisions of the group insurance plan. The individuals insured under the policy are then issued certificates of insurance.
Any fact or circumstance that would affect the judgment of a prudent underwriter in considering whether he would accept the risk or not, and at which rate of premium.
A statement made to the underwriter before acceptance of risk, which is material to his decision in accepting and rating the risk.
The maximum periodic payment a company will require regardless of age and face amount to keep a policy in-force.
The examination given by a qualified physician to determine to the insurability of an applicant. A medical examination may also be used to determine whether an insured claiming disability is actually disabled.
The least number of employees permitted under a state law to affect a group for insurance purposes; the purpose is to maintain some sort of proper division between individual policy insurance and the group forms.
The minimum periodic payment a company will allow regardless of face amount to keep a policy in-force.
An incorrect estimate of the insurance premium.
A misstatement of fact made by the insured or his broker to the underwriter before acceptance of the risk that misleads the underwriter in assessing the risk and induces the contract. If the representation is material and amounts to misrepresentation, it is a breach of utmost good faith.
Mode of Premium Payment
The frequency with which premiums are paid— monthly, quarterly, semiannually, or annually
Hazard arising from any nonphysical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss—for instance, bad habits, low integrity, poor financial standing.
A statistical table showing the death rate at each age usually expressed as so many per thousand.
Mutual Life Insurance Company
Is organized and incorporated under a state’s laws and has no stockholders. “e policy owner is the customer and, in effect, an owner. A portion of surplus earnings may return to policyholders in the form of dividends. This is in contrast to a stock company, where the policy owner is a customer only.
Motor Vehicle Report.
Products that have been certified by the NAIC.
NAIC Compliant State
A state that has passed the NAIC model illustration regulations.
National Association of Insurance Commissioners (NAIC)
The association of insurance commissioners of various states formed to promote national uniformity in the regulation of insurance.
Failure to use the care that a reasonable and prudent person would have used under the same or similar circumstances.
The portion of the premium rate that is designed to cover benefits of the policy, but not expenses, contingencies, or profit. The term is also used to describe the portion of the premium remitted to the home office by an agent after deduction of the agent’s commission.
Net Present Value (NPV)
Means of evaluating which products offer the lowest cost, taking into account the time value of money for the life of the policy.
Net Written Premiums
Premium income retained by insurance companies, directly or through reinsurance, after payments made for reinsurance.
Assets that are not recognized by regulatory authorities in assessing solvency and include items such as furniture, certain equipment, and agent’s balances. These assets are listed in exhibit 13 of the annual statement that insurers provide to insurance regulators.
Non-admitted Insurance Company
An insurance company not licensed to do business in a particular state; such a company, however, may sell excess and surplus insurance in that state if admitted insurers lack the capacity or expertise.
Non-cancelable Guaranteed Renewable Policy
An individual policy that the insured person has the right to continue to force until a specified age, such as to age 65, by the timely payment of premiums. During this period, the insurer has no right to unilaterally make any changes in any provision of the policy while it is in-force.
Failure by the insured or his broker to disclose a material fact or circumstance to the underwriter before acceptance of the risk.
One of the choices available if the policyholder discontinues premium payments on a policy with a cash value. This, if any, may be taken in cash, as extended term insurance, or as reduced paid-up insurance.
The maximum face value of a policy that a given company will issue without the applicant taking a medical examination.
Contract that insures a person against off-the-job accident or sickness. It does not cover disability resulting from injury or sickness covered by workers’ compensation. Group accident and sickness policies are frequently non-occupational.
A life insurance policy in which the company does not distribute to policyholders any part of its surplus. Note should be taken that premiums for nonparticipating polices are usually lower than for comparable participating polices. Note should also be taken that some nonparticipating polices have both a maximum premium and a current lower premium. The current premium reflects anticipated experience that is more favorable than the company is willing to guarantee, and it may be changed from time to time for the entire block of business to which the policy belongs. See also Participating Policy.
No cigarette or tobacco usage based upon company guidelines.
Occupations that expose the insured to greater than normal physical danger by the very nature of the work in which the insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected.
The sum of expenses and losses expressed as a percent of earned premium.
Synonymous with whole life and straight life. The three terms are applied to the type of policy, which continues during the whole of the insured’s life and provides for the payment of amount insured at this death.
Other Insured Rider
Rider which provides coverage to an eligible business or family member other than the insured.
Commission payable in addition to the original commission.
Insurance on which all required premiums have been paid. The term is frequently used to mean the reduced paid-up insurance available as a nonforfeiture option.
Physical examination of an applicant by a trained person other than a physician.
A life insurance policy under which the company agrees to distribute to policyholders the part of its surplus that its board of directors determines is not needed at the end of the business year. Such a distribution serves to reduce the premium the policy holder had paid. See also Policy Dividend; Nonparticipating Policy.
Pegging is a practical smoothing device used to arbitrarily increase the actual dividend(s) paid on a new lower dividend scale to eliminate a temporary reduction in the actual dividends paid from year to year on a policy. Usually only base policy dividends are pegged; dividends on riders and paid up additions (PUA) are not. (See Substitution). Pegging compares (normally before any adjustments for loans) the following: (a) the smaller of the dividend amount actually paid in the prior policy year and the prior year’s dividend schedule payable in the current policy year, and (b) the current policy year’s formula payment under the current year’s schedule. This distribution does not follow the contribution method. It’s done infrequently to enhance persistency.
This means that if a beneficiary dies before the insured, the remaining beneficiaries will equally divide that share of the proceeds in addition to receiving their own shares when the insured dies. (1) By head or by individual; (2) to share equally.
This means that if a beneficiary dies before the insured, that beneficiary’s share of the proceed will pass upon that beneficiary’s heirs rather than going to the remaining beneficiaries when the insured dies. It means “by family branches.” It’s a method of dividing benefits among living members of a class of beneficiaries and the descendants of deceased members.
The cause of a loss insured against in a policy.
Permanent Life Insurance
Type of life insurance (other than term insurance) that accrues cash value and is designed for long-term, or permanent, needs of a policyholder. Includes universal and variable life, among others.
Persistency Bonus (Policy owner’s)
An enhancement to the policy’s benefits, usually in the form of additional interest credits and/or reduced charges, for policies that remain in-force for a certain period. The bonus may or may not be guaranteed in the contract.
The degree to which policies stay in-force through the continued payment of renewal premiums.
A person appointed through the will of a deceased or by a court to settle the estate of one who dies.
The risk associated with the subject matter of insurance.
A refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience.
Fee added to the periodic premium payments to cover undefined policy costs.
A loan made by a life insurance company from its general funds to a policyholder on the security of the cash value of a policy.
The person or business that owns the policy and is responsible for premium payments.
The measure of the funds that a life insurance company holds specifically for fulfillment of its policy obligations. Reserves are required by law to be so calculated that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims.
That period for which an insurance policy provides coverage.
The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance; also called the policy contract or the contract.
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership, or a corporation.
Sum left after liabilities are deducted from assets. Sums such as paid-in capital and special voluntary reserves are also included in this term. This surplus is an additional financial protection to policyholders in the event a company suffers unexpected or catastrophic losses. In effect, it is the financial base that permits a company to sell insurance.
An organization of insurers or reinsurers through which particular types of risk are underwritten and premiums, losses, and expenses are shared in agreed-upon amounts.
An agreement to divide any losses that might occur equally among two or more people, typically with each paying the average loss.
Periodic payment discount given by a company.
A policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.
A policy loan made for the purpose of paying premiums.
A tax, imposed by each state, on the premium income of insurers doing business in the state.
The amount paid to an insurer or reinsurer in consideration of his acceptance of a risk.
The elements used in pricing a policy, principally investment earnings, mortality, and expenses. If actual experience is better than the assumptions made in determining the policy guarantees, the difference after reflecting surplus needs is available for distribution to policyholders through the company’s dividend scale or other non-guaranteed pricing structure.
The amount payable in one sum in the event of accidental death and, in some cases, accidental dismemberment. When a contract provides benefits for both accidental death and accidental dismemberment, each dismemberment benefit is an amount equal to the principal sum or some fraction thereof.
One for whom an agent acts, especially as to contractual dealings with third persons.
(1) The right to be let alone; (2) in insurance contexts, the right to fair personal information practices.
Pro Rata Cancellation
When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period coverage was provided. For example: an annual policy with premium of $1,000 is cancelled after 40 days of coverage at the company’s election. The earned premium would be calculated as follows: 40/365 days X $1,000=$110 X $1,000=$110.
That portion of the assets and liabilities whose distribution is supervised by the courts in the probate process.
The court-supervised process of validating or establishing a distribution for assets of a deceased, including the payment of out standing obligations.
A commission payable on the profit generated under an insurance or reinsurance contract as an encouragement to maintain the flow of profitable business.
Policy payment that is currently being charged by the company after the guarantee period.
Proof of Loss
Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.
A type of reinsurance where the ceding insurer cedes to its reinsurer a predetermined proportion of the liability and premium of those policies subject to the reinsurance agreement.
A guide to the various sub-accounts and other required information by the National Association of Security Dealers (FINRA) and Securities and Exchange Commission (SEC). This is required with any variable insurance product.
A standardized plan, approved and qualified as to its concept by the Internal Revenue Service, which is made available by life insurance companies, banks, and mutual funds for employers’ use.
The process by which a company decides how its premium rates for life insurance should differ according to the risk characteristics of individuals insured (e.g., age, occupation, sex, state of health) and then applies the resulting rules to individual applications. See Underwriting.
Any conscious action (or decision not to act) intended to reduce the frequency, severity, or unpredictability of accidental losses.
Risk Pooling Arrangement
See Pooling Arrangement.
Risk Retention Group
An alternative form of insurance in which members of a similar profession or business band together to self insure their risks.
Descriptive of the mortality experience of newly underwritten insureds. This period of discernibly different (favorable) mortality usually lasts 5 to 15 years.
An asset account established by a life insurance company separate from other funds, used primarily for pension plans and variable life products. This arrangement permits wider latitude in the choice of investments, particularly in equities.
The ways in which policyholders or beneficiaries may choose to have benefits paid other than a lump sum.
A beneficiary who is at least two generations younger than the person making the transfer.
Cigarette or tobacco use based upon company guidelines.
Special Risk Insurance
Coverage for risks or hazards of a special or unusual nature.
Rider that provides coverage to the insured’s spouse.
Insurance written on the basis of regular morbid ity underwriting assumption used by an insurance company and issued at normal rates.
Those contract provisions generally required by state statutes until superseded by the uniform policy provision.
A person who, according to a company’s underwriting standards, is entitled to purchase insurance protection without extra rating or special restrictions.
State Insurance Department
A department of a state government whose duty is to regulate the business of insurance and give the public information on insurance.
Statutory Accounting Principles (SAP)
Principles required by statute, which must be followed by an insurance company when submitting its financial statements to the various state insurance departments. They are designed to provide greater protection for the public against potential insolvency of these essential institutions. Such principles differ from the Generally Accepted Accounting Principles (GAAP).
Reserves calculated on the basis of state requirements.
The amount left after a company’s liabilities are subtracted from assets when both those values are computed using Statutory Accounting Principles (SAP).
Statutory Underwriting Profit or Loss
Premiums earned less losses and expenses.
A rating structure in which the premiums increase periodically at predetermined times, such as policy years or attained ages.
Stock Life Insurance Company
A life insurance company owned by stockholders who elect a board to direct the company’s management. Stock companies, in general, issue nonparticipating insurance, but may also issue participating insurance.
Stock Redemption Plan
An entity purchase form of buy-sell agreement within a corporation that involves the corporation buying back shares from a departing owner.
Straight Life Insurance
Whole life insurance on which premiums are payable for life.
The agent of an agent.
An individual, who, because of health history or physical limitations, does not measure up to the qualification of a standard risk.
Substantial Compliance Rule
The rule that, where a policyholder has done everything possible to comply with the beneficiary change procedure set forth in the policy, but has failed because of circumstances beyond his or her control, the change will be effective.
Substitution replaces the dividend formula that would have been used in the current policy year (normally before any adjustments for loans) with a prior formula if greater. Usually substitution is only used for very small base policy dividends in the first few years of a policy. See Pegging.
An agreement between a life insurance company and a policyholder or beneficiary by which the company retains the cash sum payable under an insurance policy and makes payments in accordance with the settlement option chosen.
The amount by which the value of an insurer’s assets exceeds its liabilities, i.e., the net worth of an insurance company.
An amount retained by the issuer of a life insurance policy when a policy is canceled, typically assessed only during the first five to ten years of a policy.
To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the non-forfeiture options at the time of surrender.
The cost from which your profits or losses are calculated for income tax purposes.
The value upon which estate taxes are calculated by the federal government.
Tenants in Common
A form of joint property ownership in which the owners may have unequal shares and that does not involve a right of survivorship.
Life insurance protection during a limited number of years but expiring without value if the insured survives the stated period.
An additional dividend payable when a policy terminates (either by maturity, death, or surrender), reflecting a return to terminating policyholders of part of the company surplus held for this policy.
Status given to an individual who, in the past or present, has used any type of tobacco or nicotine product other than cigarettes.
A civil wrong, other than a breach of contract, for which a court of law will afford legal relief.
An agreement between a reinsurer and a ceding insurer setting forth details of the reinsurance arrangement.
A legal instrument allowing one party to control property for the benefit of another.
The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit, or surrender his insurance for the purpose of taking out a policy in another company.
Descriptive of the insured’s mortality experience after the select period (5-15 years from issue), when mortality increases due to health deterioration.
Underwriters are the professionals upon whose experience and judgment the market depends for its expertise and reputation. It is the underwriter’s responsibility to assess the merits of each risk and decide a suitable price, or premium, for accepting all or part of the risk.
Classification given to an individual based on personal and family health history.
Underwriting Profit or Loss
The amount of money that an insurance company gains or loses as a result of its insurance operations. It excludes investment transactions and federal income taxes.
The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.
The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run.
A one-time credit of $192,800, usually applied against federal estate taxes that is available to every individual’s estate. The credit also can be used for payment of federal gift taxes during that individual’s lifetime.
A rating structure in which one premium applies to all insureds, regardless of age, sex, or occupation.
A contract having promises by one party only.
One not acceptable for insurance due to excessive risk.
Rates that are used for both males and females.
Universal Life Insurance
A flexible premium life insurance policy under which the policyholder may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at a rate that may change from time to time.
Variable Life Insurance
A permanent whole life insurance policy under which the death benefits and/or cash values vary (the death benefit is guaranteed to be at least as large as the initial face amount) reflecting the investment experience of a separate pool(s) of assets sup porting the reserves for such policies.
Variable Universal Life Insurance
Similar to universal life in that the policy owner chooses the premium to be paid each period, and has the option to increase or decrease the policy death benefit. However, the assets supporting the policy are maintained in one or more separate accounts, and the policy owner’s values fluctuate (no guarantees).
Renewal commissions payable to the writing agent or his estate, whether or not he remains with the company.
Payment of a portion of the proceeds from life insurance to an insured who is terminally ill.
One that legally does not exist.
Where the underwriter or insured has the right to avoid a policy (for example in the event of a breach of utmost good faith) the policy is termed “voidable.”
The market where one seeking insurance obtains insurance in the open market with no help from the state, through an insurer of his or her own selection.
A period of time set forth in a policy that must pass before some or all coverages begin. See also Elimination Period.
Waiver of Premium
A provision in some policies to relieve the insured of premium payments falling due during a period of continuous total disability that has lasted for a specified length of time, such as three or six months.
A statement guaranteed to be true in all respects. If the statement is untrue in any respect, even if it is not material, the contract of which it is a part can be rescinded.
Whole Life Insurance
Life insurance payable to a beneficiary at the death of the insured whenever that occurs. Premiums may be payable for a specified number of years (limited payment life) or for life (straight life).
The legal statement of a person’s wishes concerning the disposal of his or her property after death.
The entire amount of premiums due in a year for all polices issued by an insurance company. This glossary was created for the users of The Tony Steuer website. We have also made a downloadable PDF version (see “Print/PDF” button in sidebar above) for your private use. If you would like to publish this for your site, blog, newsletter etc., we are flattered and ask only that you contact us for Site license terms and approval.
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