Glossary of Terms | Pacific Life Insurance Company

Glossary of Insurance & Financial Services Terms

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1035 Exchange	See Section 1035 Exchange.
12b-1 fee	In the United States, an annual fee that is used as an alternative to a sales load to cover the cost of marketing and distributing mutual funds.
13-month lapse rate	A lapse rate for insurance policies that is based on the proportion of new policies on which no part of any required second-year premium has been paid.
401(k) plan	In the United States, a type of retirement savings plan that is established by employers for the benefit of employees and that allows both employers and employees to make specified contributions to the plan that reduce current taxable income.
403(b) plan	In the United States, a type of retirement savings plan that is established by not-for-profit employers for the benefit of employees and that allows both employers and employees to make specified contributions to the plan that reduce current taxable income.
412(i) plan	See individual policy pension trust.
457 plan	In the United States, an arrangement that allows state and local governments and their employees to make contributions to a tax-deferred savings plan established for the benefit of employees.
60-day rollover	See rollover.

ABC	See activity-based costing.
absolute assignment	The irrevocable transfer of all of a policyowner's ownership rights in a life insurance policy to another. Contrast with collateral assignment.
absorption costing	See full costing.
accelerated death benefit	A supplemental life insurance policy benefit which provides that a policyowner may elect to receive all or part of the policy's death benefit before the insured's death if certain conditions are met. Also known as a living benefit.
acceptance	In the formation of a contract, the offeree's unqualified agreement to be bound to the terms of the offer.
access	In the management of customers' information, allowing the customer the right to review and correct his personal information.
access to records provision	In a reinsurance agreement, a provision that gives the reinsurer the authority to examine the direct writer's records related to the business conducted between the companies.
accession	In property law, the right of a property owner to all that his property produces and all that is added to or united with the property.
Accident and Sickness Insurance Minimum Standards Model Act	In the United States, a model law proposed by the National Association of Insurance Commissioners (NAIC) that establishes certain standards for all individual health policies other than Medicare supplement policies.
accidental death and dismemberment (AD&D) benefit	A supplemental life insurance policy benefit that provides an accidental death benefit and provides a dismemberment benefit payable if an accident causes the insured to lose any two limbs or sight in both eyes.
accidental death benefit (ADB)	A supplemental life insurance policy benefit that requires the insurer to pay a specified amount of money in addition to the policy's basic death benefit if an insured dies as a result of an accident.
accord and satisfaction	In contract law, a method of discharging a contract in which one party to the contract agrees to accept something other than what he was entitled to receive under the original contract.
account	The basic accounting tool that a company uses to record, group, and summarize similar types of financial transactions.
account aggregation	The ability to bring together on one Web site all of a customer's financial information across all of his accounts.
account fee	A fee charged to financial services customers for certain transactions, such as cash advances, late payments, or annual service.
account maintenance charge	For variable annuities, an annual expense charge generally expressed as the lesser of (1) a monetary amount, such as $30 per year, or (2) a percentage, such as 2 percent, of the account value per year.
account maintenance transactions	Changes to an annuity contract or its supporting administrative records that do not involve (1) immediate contributions to or disbursements from the annuity or (2) immediate changes in the investment allocations of the annuity's accumulated value. Also called nonfinancial transactions.
accounting	(1) A system or set of rules and methods for collecting, categorizing, measuring, recording, summarizing, reporting, analyzing, and monitoring financial information about the financial condition and performance of a company as a whole, as well as of segments, product lines, or divisions within the company. (2) The functional area of a company that collects, records, summarizes, analyzes, and reports data about the company's financial condition.
accounting conservatism	An approach to financial reporting that typically understates the values for a company's assets, overstates the value of a company's liabilities and expenses, and projects a lower level of net income than would be the case if the company used a less conservative reporting method.
accredited reinsurer	An accredited reinsurer is a reinsurer that is not licensed in a given state but that meets specified financial and reporting requirements of that state and is licensed to transact insurance or reinsurance in at least one other state.
accrual-basis accounting	An accounting system under which a company records revenues when they are earned and expenses when they are incurred, even if the company has not yet received the revenues or paid the expenses. Contrast with cash-basis accounting.
accumulated cost of insurance	For a given product, the total of benefits paid, accumulated at interest.
accumulated value	(1) The total of an amount of money invested plus the interest earned by that money. (2) During a deferred fixed annuity's accumulation period, the amount paid for the deferred annuity, plus the investment earnings, minus the amount of any withdrawals and fees. The accumulation value of a deferred variable annuity is the total of all subaccount values under the variable annuity. Also known as accumulation value.
accumulation at interest dividend option	A policy dividend option under which a participating insurance policyowner can choose to leave any policy dividends the policy receives on deposit with the insurer to accumulate at interest.
accumulation period	The period between the contract owner's purchase of a deferred annuity and either the date that the contract's payout period begins or the date that the contract's surrender value is paid. See also deferred annuity.
accumulation unit	An ownership share in a selected subaccount of a separate account held during the accumulation period of a variable deferred annuity.
accumulation value	See accumulated value.
acid-test ratio	See quick ratio.
ACORD	A standards-developing organization that supports data and technology standards for insurance and financial services worldwide.
acquisition	An arrangement in which one corporation purchases a controlling interest in another corporation, resulting in an ownership link between formerly independent corporations.
acquisition expenses	For insurance and annuity products, the expenses an insurer incurs to obtain and issue new business; a type of operating expense. Some companies classify all pre-issue and first-year expenses as acquisition expenses. Other companies classify as acquisition expenses only those expenses incurred before contract issue. For these companies, expenses incurred after contract issue are classified as maintenance expenses. Contrast with maintenance expenses.
actively-at-work provision	A group insurance policy provision which states that, in order to be eligible for coverage, an employee must be actively at work—rather than ill or on leave—on the day the insurance coverage is to take effect.
activities of daily living (ADLs)	Activities used to measure the functional status of a person, such as eating, bathing, dressing, continence, toileting, or transferring into or out of a bed, chair, or wheelchair. Long-term care insurance benefits are triggered by an insured person's inability to perform a certain number of ADLs. Contrast with instrumental activities of daily living.
activity ratios	Financial ratios that measure the speed with which a company's various assets are converted into sales or cash. Also known as operating efficiency ratios or turnover ratios.
activity-based costing (ABC)	The process of linking costs to products based on the activities performed in producing the products or services.
actual authority	According to the principles of agency law, the authority to act on behalf of a principal that the principal intentionally gives to the agent and that the agent reasonably believes is given. Contrast with apparent authority.
actual cash value insurance	A type of property insurance that pays the insured an amount equal to the replacement cost of the property minus an amount for depreciation.
actual damages	See compensatory damages.
actuarial assumption	An assigned value used in life insurance or annuity product design to represent the estimated value of a component, such as investment earnings, the cost of benefits, company expenses, and unexpected financial results.
actuarial memorandum	In the United States, the part of an Actuarial Opinion and Memorandum (AOM) that consists of a lengthy report supporting the conclusion expressed in the actuarial opinion. Based on the size and complexity of the insurance company, this document may or may not be required. See also actuarial opinion.
actuarial opinion	In the United States, the document in an Actuarial Opinion and Memorandum (AOM) which states that the company's reserves are adequate, given the assets supporting them. See also actuarial memorandum.
Actuarial Opinion and Memorandum (AOM)	In the United States, a formal asset-liability management (ALM) report that consists of two documents: an actuarial opinion and an actuarial memorandum. See also actuarial opinion and actuarial memorandum.
actuary	An expert in financial risk management and the mathematics and modeling of insurance, annuities, and financial instruments.
AD&D benefit	See accidental death and dismemberment benefit.
ADA	See Americans with Disabilities Act.
ADB	See accidental death benefit.
additional insured rider	See second insured rider.
additional term insurance dividend option	A policy dividend option under which a participating insurance policyowner can choose to use each policy dividend to purchase one-year term insurance on the insured's life.
ADEA	See Age Discrimination in Employment Act.
adjustable rate certificate of deposit	See variable rate certificate of deposit.
adjustable rate mortgage (ARM)	A mortgage in which the interest rate fluctuates according to a benchmark rate specified in the mortgage agreement. Also known as variable rate mortgage.
ADLs	See activities of daily living.
administration expense	See maintenance expense.
administrative charge	A charge an insurer levies to cover the costs of issuing certain types of life insurance or annuity contracts, making administrative changes to such contracts, preparing contract owner statements, and performing general maintenance activities. Also known as administrative expense charge, administrative fee, or service fee.
administrative expense charge	See administrative charge.
administrative expenses	See maintenance expenses.
administrative fee	See administrative charge.
administrative services only (ASO) contract	A contract under which a self-insured group policyholder pays a fee in exchange for administrative services provided by an outside organization.
administrative supervision	In the United States, a legal condition under which regulators require an insurer to obtain regulatory permission before taking any of a variety of specified actions.
Administrative Supervision Model Act	In the United States, a model law developed by the National Association of Insurance Commissioners that provides details about a state insurance department's authority to require administrative supervision of an insurer. Also known as the Model Supervision Act.
admitted asset	In the United States, an asset whose full value can be reported on the Assets page of an insurance company's Annual Statement. Contrast with nonadmitted asset.
admitted reinsurer	See authorized reinsurer.
ADR method	See alternative dispute resolution method.
advance commissions	Commissions a replacing insurer pays in advance to a producer for replacement business, based on the estimated contribution that will be obtained from the account the customer holds with the existing insurer.
advance earnings	A loan made by an insurer to a producer in anticipation of future commissions.
advance premiums	See premiums paid in advance.
advanced underwriting	For new business, a group of specialists who will assist a producer in preparing sales proposals, and will accompany the producer, if requested, to sales presentations on how to use insurance products in a financial plan or estate planning.
adverse accounting opinion	A type of nonstandard auditor's opinion stating that the financial statements do not fairly present the company's financial condition.
adverse action	See adverse underwriting decision.
adverse deviation	In insurance product operations, a deviation that produces a decrease in actual product profitability relative to assumed product profitability. Contrast with favorable deviation.
adverse risk experience	A worse outcome from a reinsured product's operations than the outcome the direct writer and the reinsurer assumed when setting reinsurance premium rates. Contrast with favorable risk experience.
adverse selection	See antiselection.
adverse underwriting decision	A decision in which an insurer (1) declines insurance coverage to an applicant, (2) terminates coverage under an existing policy, or (3) offers to insure an applicant at a higher than standard premium rate. Also known as adverse action.
Advertisement Rule (Conduct Rule 2210)	In the United States, a Financial Industry Regulatory Authority (FINRA) conduct rule that establishes requirements for advertisements and sales literature used to communicate with the public.
Advertisements of Life Insurance and Annuities Model Regulation	In the United States, a model law developed by the National Association of Insurance Commissioners that requires insurers to disclose to the public all relevant information in their advertisements of insurance and annuity contracts and establishes minimum standards of accuracy and fairness.
affiliate	A company that controls, is controlled by, or is under common control with another company. See also subsidiary.
affiliated agent	An agent who sells primarily the products of a single insurance company. Also known as an agency-building agent.
affinity group	A group of people who share a common bond, background, or interest and who belong to an association or organization.
after-tax contributions	Annuity contributions that contract owners or plan participants include as part of their current taxable compensation.
age and amount requirements chart	See table of underwriting requirements.
Age Discrimination in Employment Act (ADEA)	In the United States, a federal law that protects workers who are age 40 and older from employment discrimination because of their age.
agency	See field office.
agency administration	The activities performed by the people in an insurer's home office or field offices to support and service the insurer's field force.
agency agreement	See agency contract.
agency by actual authority	An agency relationship created when a principal appoints a person to be its agent, the person agrees to be the principal's agent, and the principal gives the agent the authority to act on the principal's behalf. Contrast with agency by apparent authority.
agency by apparent authority	An agency relationship that is created when a principal does not expressly grant authority to an agent, but does intentionally or negligently allow a third party to believe the agent possesses authority. Contrast with agency by actual authority.
agency by ratification	An agency relationship created when a principal ratifies an unauthorized act taken by a purported agent. See also agency by actual authority, agency by apparent authority.
agency contract	A written agreement between an agent and an insurance company that outlines the agent's role, compensation, and responsibilities to the insurance company. Also known as an agency agreement.
agency relationship	The legal relationship between a principal and agent, by which the principal authorizes the agent to perform certain acts on behalf of the principal.
agency-building agent	See affiliated agent.
agent	In insurance sales, an independent sales representative or company employee who is authorized under the terms of an agency contract to act on behalf of an insurance company in selling insurance products. Also known as a producer.
agent-broker	See broker.
agent's statement	A portion of an insurance application in which a producer may report additional information that he thinks could affect the underwriting decision.
aggregate deductible	See attachment point.
aggregate premium rate table	A premium rate table that shows one set of premium rates for all insureds.
aggregate reserves	The reserves for a block of contracts, a line of business, or an entire company.
aggregate stop loss insurance	Stop-loss insurance under which the stop-loss insurer begins to reimburse the employer for claims when the employer's total claims exceed a stated dollar amount within a stated period of time.
aggregation rule	In the United States, a rule on the taxation of withdrawals from nonqualified annuities stating that all deferred annuity contracts issued (1) after October 21, 1988, (2) by the same insurer to the same contract owner, and (3) during the same calendar year are treated as one contract for purposes of determining the amount of any withdrawal that is taxable as income.
aggregator	An Internet intermediary that lists products from several different companies on a single Web site.
aggressive financial strategy	A financial management strategy that emphasizes taking risks to enhance a company's profitability. Contrast with conservative financial strategy.
aggressive growth fund	A mutual fund that typically invests in companies with the potential for rapid growth resulting in capital appreciation. An aggressive growth fund has a high risk of loss but potentially high returns or gains.
agreed value insurance	Property insurance that pays the insured an amount agreed upon by the insured and the insurer at the time of policy issue.
AIR	See assumed investment rate.
aleatory contract	A contract under which one party provides something of value to another party in exchange for a conditional promise. Contrast with commutative contract.
alien corporation	From the point of view of a given state in the United States, a corporation that was incorporated under the laws of another country. Contrast with foreign corporation, domestic corporation.
allied medical practitioner	A licensed health care provider other than a licensed medical doctor.
allocated pension funding contract	A type of pension plan contract in which all of the plan sponsor's contributions are credited to individuals in a manner that gives the individual-participants a legally enforceable claim to the benefits attributable to those contributions. Contrast with unallocated pension funding contract.
allowable expenses	In health insurance, reasonable and customary expenses that an insured incurred and that are covered under the insured's group medical expense plans.
allowance	In reinsurance, an amount the reinsurer reimburses to the direct writer and that is designed to recognize the direct writer's acquisition, maintenance, and other expenses related to the ceded business. Also known as expense allowance, reinsurance allowance, ceding commission, or reinsurance commission.
ALM	See asset-liability management.
alternative dispute resolution (ADR) method	Formal or informal negotiations to resolve a legal dispute.
AMA	See asset management account.
Americans with Disabilities Act (ADA)	In the United States, a federal law that protects disabled individuals against all types of discrimination, including employment discrimination.
amortization	In general, the reduction of a debt by regular payments of principal and interest that result in full payment of the debt by the maturity date. In accounting, the periodic and systematic increase (decrease) of the original cost of an investment to its ultimate value at maturity; amortization typically applies to an insurer's long-term assets such as bonds, mortgages, and other debt securities. Contrast with depreciation.
analytical phase of IRIS	The second phase of the Insurance Regulatory Information System (IRIS) used in the United States to monitor the financial condition of insurers. During this phase, NAIC examiners apply qualitative and quantitative standards to further analyze the Annual Statement data of insurers that had a number of unusual ratios during the first phase of IRIS analysis. See also statistical phase of IRIS.
annual administration charge	For fixed deferred annuities, a stated charge in a flat monetary amount, automatically deducted from a customer's annuity account value each year.
annual percentage rate (APR)	The actual yearly cost of borrowing over the term of a loan expressed as a single yearly percentage rate. The APR includes any fees or additional costs associated with the transaction. Also known as effective interest rate.
annual report	A financial document that the management of a company sends to interested parties—such as stockholders and investors—to report on the company's financial performance during the preceding year; helps users assess a company's profitability and financial strength. Contrast with Annual Statement.
annual reset method	For equity indexed annuities, an index-crediting mechanism that involves comparing the value of the index at the start of the contract year with its value at the end of the contract year. The starting value for the next year is reset to the value of the index at the end of the current contract year. The insurer determines the amount of excess interest by averaging the results for each contract year of the contract term. Also known as ratchet method..
Annual Return	A document Canadian insurers must file each year with Canadian insurance regulatory authorities that includes detailed accounting and statistical data about the insurer; similar to the Annual Statement required for insurers in the United States.
annual roll-up benefit	An enhanced death benefit under which the principal of a variable annuity contract is increased, or "rolled up," by a specified percent annually and the guaranteed death benefit payable is equal to the greater of (1) the contract's accumulated value at the time of the contract owner's death or (2) the rolled-up principal amount.
Annual Statement	A financial statement that every insurer in the United States must file with the National Association of Insurance Commissioners (NAIC) and the insurance regulatory organization in each state in which the insurer conducts business; helps regulators assess a company's solvency. Contrast with annual report.
annual step-up benefit	An enhanced death benefit sometimes included in variable annuities that locks in investment gains on each contract anniversary, thus guaranteeing a minimum accumulated value. The death benefit payable under this guarantee is the greater of (1) the actual accumulated value of the contract at the time of the contract owner's death or (2) the stepped-up value of the contract at the anniversary date.
annually renewable term (ART) insurance	See yearly renewable term insurance.
annuitant	The person whose lifetime is used to determine the amount of benefits payable under an annuity contract.
annuitization	The process of changing from the accumulation period to the payout period of an annuity.
annuitization period	See payout period.
annuity	In general terms, a series of periodic payments. In the financial services industry, a contract under which an insurer promises to make a series of periodic payments to the contract owner in exchange for a premium or series of premiums. See also deferred annuity and immediate annuity.
annuity certain	See period certain annuity.
annuity contract	See annuity.
annuity conversion costs	For deferred annuities, the costs to the contract owner to obtain a specified dollar amount of periodic income payment. Tables of these costs show the actuarial present value of periodic income payments of a specified amount per period for an annuitant of a specified age and sometimes of a specified gender.
annuity cost	The present value of future periodic income payments under an annuity.
annuity date	See maturity date.
Annuity Disclosure Model Regulation	In the United States, a model act developed by the National Association of Insurance Commissioners (NAIC) that provides prospective purchasers of specified types of annuities with information to help them select an annuity appropriate for their needs.
annuity due	A series of equal payments that are made at the beginning of each payment period over a fixed amount of time. Contrast with ordinary annuity.
annuity mortality table	A type of mortality table that shows the projected mortality rates and survival rates for a population of annuitants only. Contrast with life insurance mortality table.
annuity period	The time span between each of the payments in the series of periodic annuity payments.
annuity purchase costs	For immediate annuities, the costs to the contract owner to obtain a specified dollar amount of periodic income payment. Tables of these costs show the actuarial present value of periodic income payments of a specified amount per period for an annuitant of a specified age and sometimes of a specified gender.
annuity reserves	Contractual reserves that are calculated at annuity contract issue.
annuity unit	A share in an insurer's separate account during the payout period; obtained by converting accumulation units in various subaccounts before the first annuity payment is made.
antiselection	The tendency of individuals who believe they have a greater-than-average likelihood of loss to seek insurance protection to a greater extent than do other individuals. Also known as adverse selection or selection against the insurer.
antitrust laws	Laws designed to protect commerce against the monopolization of market power and unlawful restraints of trade, such as price discrimination and price fixing. Known as competition laws in most countries other than the United States.
AOM	See Actuarial Opinion and Memorandum.
APL option	See automatic premium loan option.
apparent authority	According to the principles of agency law, authority that is not expressly given to an agent but that the principal either intentionally or negligently allows a third party to believe the agent possesses. Contrast with actual authority.
app-later issue	A new business procedure whereby the insurer receives application information electronically and then prints and sends a paper application, or a confirmation receipt, along with the annuity contract for the contract owner to sign.
app-less issue	A new business procedure whereby the insurer issues the annuity contract without ever requiring a signed application or confirmation receipt.
applicant	The person or business that applies for an insurance policy.
appointment	A written statement issued by a licensed insurer authorizing the holder to act as an agent of the insurer.
appreciation	An increase in the value of an investment. Contrast with depreciation.
appropriated surplus	See special surplus.
approval premium receipt	A conditional premium receipt that provides temporary insurance coverage only when the insurer approves the proposed insured as a standard or better-than-average risk. Contrast with insurability premium receipt. See also conditional premium receipt and binding premium receipt.
APR	See annual percentage rate.
APS	See Attending Physician's Statement.
arbitration	An alternative dispute resolution method in which impartial third parties, known as arbitrators, evaluate the facts in a legal dispute and render a decision that usually is binding on the parties. See also mediation.
arbitration provision	A reinsurance agreement provision that requires the reinsurance parties to submit disputes they cannot resolve through negotiation to an arbitration panel rather than to a court of law and that describes the procedures the parties must use to select arbitrators and conduct the arbitration process.
arbitrator	An impartial third party who evaluates the facts in a legal dispute and renders a decision that is binding on the parties. See also mediator.
ARM	See adjustable rate mortgage.
ART insurance	Annually renewable term insurance. See yearly renewable term insurance.
A-share annuity	A variable annuity with a front-end load based on the contribution amount. Contrast with B-share annuity, C-share annuity, L-share annuity.
ASO contract	See administrative services only contract.
asset accumulation product	A product that enables customers to increase the amount and/or value of their assets over time.
asset adequacy analysis	A broad actuarial practice undertaken to ensure that the assets backing reserves meet established standards.
asset allocation	A process of investing money in predetermined proportions in different types of assets to create a portfolio of assets with the investor's desired expected return and desired expected risk characteristics.
asset allocation criteria	See diversification criteria.
asset allocation fund	A type of mutual fund that invests in various asset classes—stocks, bonds, and cash equivalents, such as money market instruments, to maintain precise weightings within each of those asset classes.
asset allocation model	A tool that uses an investor's personal and financial data to generate options for strategically distributing assets among different types and classes of investments.
asset allocation plan	A determination or plan outlining into which asset classes investments should be placed.
asset class	A group of similar investment instruments linked by related risk and return features. Three common asset classes are stocks, bonds, and money market funds or cash equivalents.
asset concentration risk	The risk of the excessive concentration of assets in any single category.
asset distribution products	Financial products that enable owners to manage the distribution of assets to ensure that resources are available when needed.
asset fluctuation reserves	Non-contractual reserves designed to absorb short-term fluctuations in the gains and losses affecting an insurer's invested assets. These reserves allow the effects of short-term investment gains and losses to be reflected only gradually in reported capital and surplus.
asset management account (AMA)	An account that offers checking services as part of a package of financial services, including a money market deposit account, securities brokerage services, credit and debit cards, loans, and unified record keeping. Also known as a sweep account.
asset management charge	See investment management fee.
asset management fee	See investment management fee.
asset manager	See asset-liability manager.
asset mix	The relative shares of different asset types that comprise a given investment portfolio.
asset portfolio	In asset-liability management (ALM), the portfolio in which the insurer holds securities and other invested assets. Contrast with liability portfolio.
asset protection product	A product that protects owners against the risk of financial loss from unforeseen events such as natural disasters, theft, accidents, illnesses, and death.
asset risk	For an insurer, the risk that it will lose money on its investments in stocks, bonds, mortgages, and real estate. One of four officially recognized C risks. Also known as C1 risk.
asset trader	An investment professional who is responsible for executing purchases and sales of publicly traded securities.
asset valuation	The process of calculating the monetary values for assets.
asset-based commission schedule	For annuity sales, a commission schedule in which commissions are calculated as a percentage of the accumulated value of a deferred annuity contract's funds. Also known as a trail commission schedule. Contrast with deposit-based commission schedule.
asset-liability management (ALM)	The practice of coordinating the administration of an insurer's asset portfolio (its investments) with the administration of its liability portfolio (its obligations to customers) so as to manage risk and still earn an adequate level of return.
asset-liability manager	The position within an insurance company responsible for monitoring the investments for a specific line of the insurer's business and making sure funds are available when needed to support that line. Also known as an asset manager.
assets	All the things of value owned by a company, such as cash, financial securities, buildings, furniture, and land. Contrast with liabilities.
assigned surplus	See special surplus.
assignee	The party to whom property rights are transferred under a legal agreement known as an assignment. Contrast with assignor.
assignment	As pertains to insurance, a legal agreement under which a policyowner or contract owner—the assignor—transfers some or all of her ownership rights in an insurance policy or annuity to another party—the assignee. See also absolute assignment, collateral assignment.
assignment provision	A life insurance policy or annuity contract provision which describes the roles of the insurer and the policyowner or contract owner when the policy is assigned.
assignor	The person who transfers ownership rights in property by means of an assignment. Contrast with assignee.
association examination	In the United States, a single financial condition examination of an insurer operating in more than one zone or in more than three states conducted by examiners representing the various states or zones in which the insurer does business.
association group	A group that consists of members of an association, such as a teachers' association or physicians' association, formed for a purpose other than obtaining insurance coverage.
assumed investment rate (AIR)	The rate of return that variable annuity subaccount investments are expected to earn during the accumulation period; used to estimate annuity payments.
assumed mortality	The hypothetical or assumed number or rate of deaths in a given cohort, or group of people. Contrast with expected mortality.
assuming company	See reinsurer.
assumption certificate	An insurance certificate issued to an insurer's existing policyowners to show that a reinsurer has assumed from the issuing company all of the risk under the policies. See also assumption reinsurance.
assumption reinsurance	Reinsurance designed to permanently and entirely transfer blocks of existing insurance business from one company to another. Also known as portfolio reinsurance. Contrast with indemnity reinsurance.
Assumption Reinsurance Model Act	In the United States, a model law proposed by the National Association of Insurance Commissioners (NAIC) to regulate the transfer and novation of insurance contracts by way of assumption reinsurance. Defines the rights and responsibilities of policyholders, regulators, and the parties to assumption reinsurance agreements.
assured	See insured.
attachment point	For stop-loss insurance, the total dollar amount of claims that the employer must pay within a stated period of time before the stop-loss insurer begins to reimburse the employer. Also known as aggregate deductible.
attained age conversion	A conversion of a term life insurance policy to a cash value life insurance policy in which the premium rate for the cash value policy is based on the insured's age at the time the policy is converted. Contrast with original age conversion.
attending physician	A physician, whether he is a primary care physician or a specialist, who has provided medical care for a proposed insured. Contrast with examining physician.
Attending Physician's Statement (APS)	A report by a physician who has treated or is currently treating a proposed insured that is provided to an insurer during the underwriting process. Also known as a medical attendant's report (MAR).
audit	A systematic examination and evaluation of a company's records, procedures, and controls.
auditor's opinion	A statement, prepared by a public accounting company, that attests that the information contained in an insurer's annual report fairly represents the insurer's operations and that the audit was conducted in accordance with applicable auditing standards.
authorized reinsurer	In the United States, a reinsurance company that is licensed or otherwise recognized by the insurance department in the jurisdiction of a direct writer. Also known as an admitted reinsurer.
auto-adjudication	An electronic claim processing system for processing claims that fit certain parameters specified for electronic handling.
automatic binding limit	In an automatic reinsurance arrangement, the maximum monetary amount of risk the reinsurer will accept automatically on a given policy or case without making an independent underwriting assessment.
automatic dividend option	A specified policy dividend option that the insurer will apply if a policyowner does not choose an option.
automatic nonforfeiture benefit	A specific nonforfeiture benefit that becomes effective automatically when a renewal premium for a cash value life insurance policy is not paid by the end of the grace period and the policyowner has not elected another nonforfeiture option.
automatic portfolio rebalancing	A special service whereby the insurer transfers money among subaccounts at specified intervals (such as at the end of each calendar quarter) to maintain the contract owner's desired investment allocation.
automatic premium loan (APL) option	A cash value life insurance policy nonforfeiture option under which the insurer will automatically pay an overdue premium for the policyowner by making a loan against the policy's cash value as long as the cash value equals or exceeds the amount of the premium due.
automatic reinsurance	A type of reinsurance under which the direct writer agrees in advance to cede and the reinsurer agrees in advance to assume all cases that meet the specifications in the reinsurance agreement. Contrast with facultative reinsurance and facultative-obligatory reinsurance.
automobile insurance	A type of personal property insurance that protects an insured from financial losses arising from operation of a vehicle.
aviation exclusion provision	A life insurance policy provision which states that an insurer will deny payment of policy proceeds if the insured's death is caused by certain aviation-related activities.

backdating	A practice by which an insurer makes the effective date of an insurance policy earlier than the date of the application.
back-end load	(1) A fee a mutual fund charges when an investor sells shares. Also known as a deferred sales charge. (2) An amount charged to an insurance or annuity contract owner when she withdraws money from the product. Also known as a surrender charge, and for variable annuities, a contingent deferred sales charge. Contrast with front-end load.
bailout provision	In a fixed annuity contract, a provision that enables the contract owner to surrender the annuity contract, usually without surrender charges, if the current interest rate falls below a stated level—typically 1 percentage point below the initial current interest rate. Also known as an escape clause or cash-out provision.
balance sheet	A financial document that lists the values of a company's assets, liabilities, and capital and surplus as of a specific date. See asset, liability, capital, and surplus. Also known as a statement of financial position or a statement of financial condition. See also basic accounting equation. Contrast with income statement.
balance sheet equation	See basic accounting equation.
balanced mutual fund	A mutual fund that has the objective of preservation of capital with moderate income and growth in value.
bancassurance	Outside of the United States, a term used to describe the distribution of insurance products to bank customers through a bank-affiliated insurer. In the United States, known as bank distributed insurance.
banding	A method of providing quantity discounts in which a company creates a number of contiguous bands based on the face amount of a policy and charges different premium rates for each band.
bank distributed insurance	See bancassurance.
bargaining contract	A contract created when both parties, as equals, set the terms and conditions of the contract. Contrast with contract of adhesion.
basic accounting equation	An equation which states that a company's assets equal the sum of its liabilities and its owners' equity (capital and surplus); forms the basis of a balance sheet. Also known as balance sheet equation. See also balance sheet, assets, liabilities, capital, and surplus.
basic illustration	A spreadsheet, ledger, or proposal that is used in the sale of a life insurance policy and that shows both guaranteed and nonguaranteed policy values. Contrast with supplemental illustration.
basic medical expense coverage	Medical expense insurance coverage providing separate benefits for each type of covered medical care cost. Basic coverage typically provides benefits for hospital, surgical, and physicians' expenses.
basic mortality table	A type of mortality table that has no margin built into the rates, is used for technical product design, and provides realistic mortality rates so that an insurer can best estimate future mortality costs. Contrast with valuation mortality table.
basis point (bp)	An increment of one-hundredth of a percent (0.01 percent). Thus, 100 basis points equals one percent. Half a percent is equal to 50 bp, and one and a half percent is equal to 150 bp. Insurers often use this unit of measurement in calculating interest margins for insurance products with a significant investment component. See also interest spread.
benchmark	A performance standard, often based on standards achieved by leading companies, that represents a company's goals for performance.
benchmarking	A process by which a company compares its own performance, products, or services with those of other organizations that are recognized as the best in a particular category in order to identify areas for organizational improvement.
beneficiary	For an insurance policy, the person or party that the owner of an individual policy or the group insured names to receive the policy benefit. See also primary beneficiary, contingent beneficiary, revocable beneficiary, irrevocable beneficiary, concurrent beneficiary, preference beneficiary.
benefit base	The amount to which a variable life insurance policy's net investment return will be applied periodically.
benefit period	The time during which an insurer agrees to pay benefits to an insured under a disability income or long-term care insurance policy.
benefit schedule	A table or schedule that specifies the amount of coverage provided for each class of group insureds by a group insurance policy.
benefit transmittal	In group insurance, an attachment to a request for proposal (RFP) that provides details about the insurance benefits being requested, the effective date of coverage, how premium billing and claims will be administered, and other information about the requested group insurance plan.
benefit trigger	A long-term care insurance policy requirement specifying the conditions that establish an insured's eligibility to receive long-term care benefits.
benefit unit	The specific amount of coverage specified in a premium rate.
benefit waiting period	See elimination period.
benefits budget	A type of expense budget, which indicates the amount of money an insurer expects to pay for insurance policy or annuity contract benefits, such as claims, cash surrenders, and policy dividends during the next accounting period.
BGA	See brokerage general agent.
bilateral contract	A contract in which both parties make legally enforceable promises when they enter into the contract. In an insurance contract, only one party—the insurer—makes a legally enforceable promise. Contrast with unilateral contract.
binding premium receipt	A premium receipt that provides temporary insurance coverage that becomes effective on the date specified in the receipt. The temporary insurance coverage ends at the earlier of (1) the date specified in the receipt, (2) when the insurer rejects the application, or (3) when the insurer approves the application. Contrast with conditional premium receipt. See also temporary insurance agreement.
blended rating	A method of calculating group insurance premium rates that combines manual rating and experience rating. Contrast with manual rating and experience rating.
block of policies	A group of policies issued to insureds who are all the same age, the same sex, and in the same risk classification.
blood chemistry profile	A group of laboratory tests that analyze a sample of blood to identify factors that point to possible chronic and acute diseases.
board of directors	A group of individuals who are responsible for overseeing the management of a corporation; the top level of management.
bond	A security that represents a debt that a borrower (the issuer of the bond) owes to the bondholder (the person or company that buys the bond). Bonds are typically the largest investment holdings in the general accounts of insurance companies. See also debt security.
bond fund	A mutual fund whose assets are invested primarily in bonds.
bond issuer	The entity that sells a bond to raise money.
bond ladder	An investment strategy that involves purchasing a series of bonds whose maturity dates are staggered to produce a steady stream of potential cash.
bond principal	See par value.
bond rating	A letter grade that a bond rating agency assigns to indicate the quality of a bond issue.
bond subaccount	A subaccount in an insurance company's separate account that consists of a variety of both short-term and long-term government and corporate bonds.
bondholder	The owner of a bond.
bonus annuity	A variable annuity under which the insurer credits a stated amount to the initial purchase payment or subsequent purchase payments as an incentive for the customer to purchase the contract.
book value	The value at which an asset is recorded in a company's accounting records. Contrast with current market value.
bordereau service	A direct writer's action of providing a reinsurer with a list of total reinsurance premiums and other information.
bottom-up budgeting	A budgeting approach that starts at the bottom of a company, with lower-level managers generating budgets for their areas, which are then presented in the form of recommendations to senior management. Contrast with top-down budgeting, zero-based budgeting.
bp	See basis point.
breakeven analysis	See cost-volume-profit analysis.
breakeven point	The point at which product revenues equal product costs, marking the end of the breakeven period. Also known as the validation point.
broker	In insurance sales, an independent agent who does not have an exclusive contract with any single insurer or specific obligations to sell a single insurer's products. Also known as an agent-broker or insurance broker.
brokerage general agency arrangement	An arrangement to distribute nonproprietary products in which an insurance company enters into an agreement to allow its affiliated agents to sell products offered through an independent general agent, known as a brokerage general agent.
brokerage general agent (BGA)	An independent general agent who is under contract to a number of insurers.
broker-dealer	A financial institution that buys and sells securities either for itself or for its customers and provides information and advice to customers regarding the purchase and sale of securities.
B-share annuity	A variable annuity with a back-end load that reduces gradually over a six, seven, or eight-year period. Contrast with A-share annuity, C-share annuity, L-share annuity.
budget	A financial plan of action, expressed in monetary terms, that covers a specified period, such as one year.
build chart	A chart that indicates average weights for various heights, along with the mortality debits associated with increases in weight.
bulk administration	A method of reinsurance administration in which the direct writer administers the reinsurance and periodically submits summarized reports on premiums and on the policies to the reinsurer, but does not provide individualized detailed information about risks reinsured until a claim needs to be processed.
business continuance plan	A plan that provides arrangements and systematic procedures to be followed in case of weather emergencies (such as floods or ice storms), computer systems failures, power or network outages, power spikes, cable cuts, fires, or similar events that would prevent or hamper normal business operations. Also known as a contingency plan or a disaster recovery plan.
business continuation insurance plan	An insurance plan designed to enable a business owner (or owners) to provide for the business' continued operation if the owner or another key person dies. See also partnership insurance.
business credit risk	See counterparty risk.
business finance company	See commercial finance company.
business income insurance	A type of property insurance that covers losses resulting from the suspension of business operations, including loss of net income, expenses that continue during suspension of business operations, and extra expenses incurred to avoid or minimize business interruption.
business insurance	Insurance that serves the needs of a business organization rather than those of a person.
business market	See organizational market.
business overhead expense coverage	A disability coverage option that provides benefits designed to pay a disabled insured's share of a business's overhead expenses.
business risk	The risk that changes in a company's external environment will affect its operations. Also known as marketplace risk.
businessowners policy	A package commercial property and liability insurance policy that is available to certain small- to medium-sized businesses and covers commercial real property, personal property, and liability.
Buyer's Guide	See Life Insurance Buyer's Guide.
buy-sell agreement	An agreement in which (1) one party agrees to purchase the financial interest that a second party has in a business following the second party's death and (2) the second party agrees to direct his estate to sell his interest in the business to the purchasing party. See also cross-purchase agreement, entity agreement.

C (contingency) risks	In the United States, four officially recognized categories of risk that the actuarial profession has identified as being able to cause financial distress for insurers. See also asset risk, pricing risk, interest-rate risk, and general management risk.
C1 risk	See asset risk.
C2 risk	See pricing risk.
C3 risk	See interest-rate risk.
C4 risk	See general management risk.
calendar-year deductible	In medical expense insurance, a deductible that applies to the total of all allowable expenses an insured incurs during a given calendar year.
call center	An organizational unit within a company that receives and/or places telephone calls to customers. See contact center.
call option	A type of derivative security that gives the holder the right to buy the underlying security at a specified price.
call provision	A bond provision that states the conditions under which the bond issuer has the right to require the bondholder to sell the bond back to the issuer at a date earlier than the maturity date.
callable bond	A bond that gives the bond issuer the right to call, or pay off, the bond before the bond's maturity date.
Canada Pension Plan (CPP)	A Canadian federal compulsory, contributory, earnings-related social insurance program that ensures a measure of protection to a contributing wage earner and his family against the loss of income due to retirement, disability and death.
Canadian Council of Insurance Regulators (CCIR)	An organization that consists of provincial superintendents of insurance that discusses insurance issues and recommends uniform insurance legislation to the provinces; similar to the National Association of Insurance Commissioners (NAIC) in the United States.
cancellable policy	An individual health insurance policy that grants the insurer the right to terminate the policy at any time, for any reason, simply by notifying the policyowner that the policy is cancelled and refunding any advance premium that has been paid for the policy. See also conditionally renewable policy, guaranteed renewable policy, noncancellable policy, optionally renewable policy.
cap	See interest-rate cap.
capital	(1) An amount of money that a company's owners invested in the company, usually through the purchase of company stock. (2) The excess of a company's assets over its liabilities.
capital adequacy	The minimum amount of capital an insurer must hold to meet a specified standard for capital.
capital adequacy testing	See dynamic solvency testing.
capital and surplus	For insurers, the amount remaining after liabilities are subtracted from assets; owners' equity in an insurance company. See also owners' equity, balance sheet, basic accounting equation.
capital and surplus ratio	A solvency ratio that describes the relationship between an insurer's capital and surplus and its liabilities. A capital and surplus ratio is used to measure an insurer's financial strength. Also known as a capital ratio.
capital appreciation	An increase in the value of invested assets.
capital budget	A budget that shows a company's plans for the financial management of its long-term, high-cost investment proposals, such as new investments in equipment or real estate, major repairs to or remodeling of existing investments, acquisitions of other companies or lines of business, mandated safety and environmental improvements, expense reduction projects, purchases of new computer systems and equipment, and revenue expansion projects.
capital budgeting	The analysis of decisions about the investment of long-term funds.
capital gain	The amount by which the selling price of an investment is more than its purchase price. Contrast with capital loss.
capital loss	The amount by which the selling price of an investment is less than its purchase price. Contrast with capital gain.
capital market	See financial market.
capital ratio	See capital and surplus ratio.
captive agent	See career agent.
captive reinsurer	A reinsurer that is formed for the purpose of providing reinsurance by an insurance company or another type of company and that is controlled by that company.
career agent	An insurance sales agent who is under a full-time contract with one insurance company and sells primarily that company's life insurance products. Also known as captive agent, exclusive agent. See also independent agent and multiple-line agent.
case assignment system	A method of assigning cases to underwriters based on the characteristics of the case.
case management	A process by which a health plan (1) identifies plan members who require extensive, complex health care, (2) develops an appropriate treatment strategy based on medical necessity and appropriateness and the availability of alternative care solutions, and (3) coordinates and monitors patient care.
cash accounting	See treasury operations.
cash dividend option	A life insurance policy dividend option under which the insurance company sends the policyowner a check in the amount of the policy dividend that was declared. See also policy dividend options.
cash equivalents	Short-term assets that are not cash, but can typically be converted to cash within 90 days with little or no risk of losing value.
cash flow	Any movement of cash into or out of an organization.
cash flow statement	A financial statement that provides information about a company's cash receipts (inflows), cash disbursements (outflows), and the net change in cash (the difference between cash inflows and cash outflows) during a specified accounting period. Also known as a statement of cash flows.
cash flow testing (CFT)	See cash-flow testing.
cash inflow	A movement of cash into an organization. Also known as a source of funds.
cash management	See treasury operations.
cash management products	Financial products that enable owners to manage available funds and use them to make purchases and pay bills, to store money for short periods of time, and to transfer funds from one account to another.
cash outflow	A movement of cash out of an organization. Also known as a use of funds.
cash payment nonforfeiture option	See cash surrender value nonforfeiture option.
cash surrender value	The amount of the cash value that a policyowner is entitled to receive upon surrender of the policy. Also known as the surrender value or surrender benefit. See also net cash surrender value. Contrast with face amount.
cash surrender value nonforfeiture option	A life insurance policy nonforfeiture option that permits a policyowner to discontinue premiums payments, surrender the policy, and receive the policy's cash surrender value in a lump-sum payment. Also known as cash payment nonforfeiture option.
cash value	The savings element of a cash value life insurance policy. See also cash surrender value.
cash value accumulation test	For federal income tax purposes in the United States, one of the qualification tests a policy must meet to be considered a life insurance contract that provides a tax-free death benefit. A policy passes this test if, according to the contract terms, the amount of its cash surrender value is never greater than the amount of the net single premium needed to fund the policy death benefit.
cash value life insurance	Life insurance that provides insurance coverage throughout the insured's lifetime and provides a savings element, known as the cash value. Sometimes referred to as permanent life insurance. Contrast with term life insurance.
cash-basis accounting	An accounting system in which a company recognizes revenues or expenses only when it receives or disburses cash. Contrast with accrual-basis accounting.
cash-flow matching	A technique that involves identifying the patterns of cash outflows for insurance products and matching those cash outflows with a selection of assets that will produce a similar pattern of cash inflows.
cash-flow testing (CFT)	The use of simulation modeling to project into a future period the cash flows associated with an insurance company's assets and liabilities as of a given valuation date and to compare the timing and amounts of assets and liability cash flows at various times after the valuation date.
cash-out provision	See bailout provision.
cat cover	See catastrophe coverage.
catastrophe coverage	A type of nonproportional reinsurance designed to partially protect direct writers from (1) a single catastrophic event resulting in multiple claims or (2) an annual total of claims in a catastrophic amount. The coverage usually is a backup for accident or casualty coverages. The coverage usually requires the reinsurer to pay claims on the direct writer's total claims above a stated amount, subject to (1) a minimum number of qualified claims or minimum amount of claim benefits and (2) a maximum total reinsurance payout. Also known as cat cover.
catastrophic health insurance plan	See high deductible health plan.
CCIR	See Canadian Council of Insurance Regulators.
CD	See certificate of deposit.
CDS	See Complaints Database System.
CDSC	Contingent deferred sales charge. See back-end load.
cede	An insurance company's transfer of all or part of a specified risk to a reinsurance company.
ceding commission	See allowance.
ceding company	See direct writer.
census	In group insurance, a document that lists demographic information about the group prospect as a unit and about individual members within the group.
certificate holder	See group insured.
certificate of authority	A document that grants an insurer the right to conduct an insurance business and sell insurance products in the jurisdiction that grants the certificate. Also known as a license.
certificate of deposit (CD)	A contractual agreement issued by a bank or other depository institution such as a credit union that returns the owner's principal with interest on a specified date.
certificate of insurance	A document that is provided to each person insured by a group insurance plan that describes (1) the coverage that the master group insurance contract provides and (2) the group insured's rights under the contract.
cession	Both the unit of insurance risk that a direct writer transfers to a reinsurer and the document used to record the transfer of risk from a direct writer to a reinsurer
cession arrangement	An agreement that Identifies the direct writer's obligations and rights to cede risks, and identifies the reinsurer's obligations to accept risk as well as its rights to reject risk.
CFT	See cash-flow testing.
change in health statement	A document, contained in most individual life insurance applications and premium receipts, that requires a proposed insured to notify the insurer in writing if his health or any material information in the application changes before the policy is delivered.
change of beneficiary provision	A provision included in individual life insurance policies and health insurance policies providing a death benefit which states the procedure the policyowner should follow for making a beneficiary change. Typically, the provision states that, unless a policyowner makes an irrevocable beneficiary designation, the policyowner has the right to change a beneficiary designation and to surrender or assign the policy without the beneficiary's consent.
change of occupation provision	A provision in individual disability income insurance policies that permits the insurer to adjust the policy's premium rate or the amount of benefits payable under the policy if the insured changes occupation.
change of ownership provision	An individual life insurance policy provision that permits a policyowner to transfer all ownership rights by notifying the insurer, in writing, of the change. When the insurer records the ownership change in its records, the change generally becomes effective as of the date the policyowner signed the written notification.
children's insurance rider	A supplemental life insurance policy benefit that can be added to an individual life insurance policy to provide term life insurance coverage on the insured's children.
chronic condition	An illness or disease that is expected to last a year or longer. A person certified by a licensed health care practitioner as having a chronic condition may, in certain circumstances, qualify for long-term care or disability income benefits.
churning	An unfair sales practice in which a producer induces a customer to replace one life insurance policy or annuity contract with another product, multiple times, so that the producer can earn a series of first-year commissions on the replacements.
CI benefit	critical illness benefit. See dread disease benefit.
claim	A request for payment under the terms of an insurance policy.
claim adjudication	See claim administration.
claim adjustor	See claim analyst.
claim administration	The insurance function that is responsible for evaluating, processing, and paying valid claims for contractual benefits that policyowners or beneficiaries present. Also known as claim adjudication, claim handling, claim processing, or claim servicing.
claim analyst	An insurance company employee who is trained to review individual claims and determine the company's liability under each claim. Also known as a claim examiner, claim adjustor, or claim specialist.
claim examiner	See claim analyst.
claim form	A document containing information about a loss under an insurance policy that is submitted to an insurer to begin the claim evaluation process. Also known as a claimant's statement.
claim fraud	An action by which a person intentionally uses false information in an unfair or unlawful attempt to collect benefits under an insurance policy or annuity contract.
claim handling	See claim administration.
claim investigation	The process of obtaining the additional information necessary to make an appropriate claim decision.
claim processing	See claim administration.
claim provision	A reinsurance agreement provision which states the terms and conditions of the reinsurer's liability for claims submitted under reinsured policies.
claim servicing	See claim administration.
claim settlement	A lump-sum payment by an insurer to a claimant in exchange for the claimant's agreement to release the insurer from further responsibility for coverage under the policy.
claim specialist	See claim analyst.
claimant	A beneficiary or policyowner who submits a policy claim to an insurance company.
claimant's statement	See claim form.
claims bordereau	In some self-administered reinsurance arrangements, a report that includes information about the individual claims received and/or paid by the direct writer on reinsured policies and the reinsurer's obligation under those claims. Also called a loss bordereau.
claims provision	A provision typically included in individual health insurance policies that defines an insured's obligation to provide timely notification of loss to the insurer and the insurer's obligation to make prompt benefit payments to the insured. Also known as notice of claim provision.
class designation	A life insurance beneficiary designation that identifies a certain group of people rather than naming each person individually. See also per stirpes beneficiary designation and per capita beneficiary designation.
cliff vesting schedule	For qualified retirement plans in the United States, a type of minimum vesting schedule that provides a participant with a nonforfeitable right to all employer-funded plan benefits or account values after a specified period—for example, after five years of full employment. Contrast with graded vesting schedule.
close notice	See drop notice.
closed contract	A contract for which only those terms and conditions that are printed in—or attached to—the contract are considered to be part of the contract. Contrast with open contract.
closed-end investment company	An investment company whose shares are traded on an organized stock exchange, like the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation System (Nasdaq). Contrast with open-end investment company.
closing	(1) In insurance sales, the part of an insurance sales presentation that occurs when an agent secures a purchase commitment from a prospect by asking for and obtaining the prospect's agreement to submit an application for the coverage recommended in the proposal. (2) Generally, the conclusion of a purchase transaction, usually accomplished by satisfaction of all conditions stated in the purchase contract.
CMBS	See commercial mortgage-backed security.
CMO	See collateralized mortgage obligation.
COB provision	See coordination of benefits provision.
COBRA	See Consolidated Omnibus Budget Reconciliation Act.
COBRA continuation coverage	In the United States, group medical expense insurance coverage that is continued under the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA) when an individual's employer-provided group health insurance has terminated because of certain qualifying events.
cognitive impairment	In long-term care (LTC) insurance underwriting, mental incapacity that prevents a person from performing activities of daily living (ADLs) or from living safely. See also activities of daily living.
cognitive screen	A test designed to determine a person's powers of recollection or short-term memory that is often used to measure cognitive impairment in persons insured under long-term care (LTC) insurance.
cohort	A defined group of people.
coincident indicator	A statistical variable that tends to change about the same time that gross domestic product (GDP) changes. Contrast with leading indicator, lagging indicator. See also gross domestic product.
coinsurance	(1) A provision in a medical expense insurance policy requiring the insured to pay a percentage of all allowable expenses remaining after the insured pays the deductible. (2) A basic type of proportional reinsurance, suitable for life, annuity, health, disability income, and long-term care coverages, in which a direct writer and a reinsurer proportionately share the obligations of a policy, including paying the death benefit and the nonforfeiture values, and establishing the policy reserve.
coinsurance allowance	In a coinsurance arrangement, an allowance that the reinsurer provides to the direct writer to acknowledge expenses. The coinsurance allowance can be calculated as a specified proportionate share of the coinsurance gross premium.
coinsurance gross premium	In a coinsurance arrangement, the reinsurance gross premium including reinsurance allowances.
coinsurance net premium	In a coinsurance arrangement, the amount the direct writer must pay to the reinsurer after subtracting the coinsurance allowance from the reinsurance gross premium.
COLA benefit	See cost-of-living adjustment benefit.
cold calling	A sales process in which the seller telephones or visits prospects with whom the seller has had no prior contact. Also known as cold canvassing.
cold canvassing	See cold calling.
collateral	An asset that is pledged as security for a loan until the debt is paid.
collateral assignment	A temporary assignment of the monetary value of a life insurance policy as collateral—or security—for a loan. Contrast with absolute assignment.
collateralized mortgage obligation (CMO)	A type of bond secured by a pool of residential mortgage loans.
collision insurance	Physical damage insurance that covers an insured for losses to his vehicle caused by a collision regardless of whether the insured was at fault.
combination roll-up/step-up benefit	An enhanced death benefit in a variable annuity that offers both a roll-up of principal and a lock on investment gains at each contract anniversary. Under this benefit, the death benefit payable is equal to the greatest of (1) the contract's accumulated value at the time of the contract owner's death, (2) the rolled-up principal amount, or (3) the stepped-up value at contract anniversary.
combined retention	See corporate retention limit.
commercial automobile insurance	A type of property insurance that comes in three forms: business automobile coverage, which is similar to personal automobile coverage; garage coverage, which covers businesses that sell, service, park, or store automobiles; and motor carrier coverage, which covers businesses that provide transportation of people, goods, or both, as specified in the policy.
commercial bank	A depository institution that accepts deposits from people, businesses, and government agencies and uses those deposits to make loans to people, businesses, and government agencies.
commercial finance company	A finance company that extends loans and leases equipment to businesses. Also known as a business finance company. Contrast with consumer finance company.
commercial liability insurance	A type of liability insurance that covers bodily injury and property damage liability, personal and advertising injury liability (such as defamation), and medical payments.
commercial mortgage	A loan secured by commercial real estate, such as shopping centers, office buildings, hospitals, factories, and retail stores.
commercial mortgage-backed security (CMBS)	A securitized pool of commercial mortgages.
commercial paper	A financial instrument, consisting of short-term, unsecured promissory notes, a corporation issues to businesses or governments to obtain capital for short-term business needs. It is an alternative to short-term bank loans or other forms of borrowing.
commercial property insurance	A type of property insurance that covers buildings and personal property owned by a business and personal property of others in the care of the business.
commingling of funds	In insurance sales, the prohibited practice of combining monies belonging to others with a producer's own funds, even on a temporary basis.
commission	In insurance sales, an amount of money, typically a percentage of the premiums paid, that an insurer pays to a producer for selling and servicing an insurance policy or annuity contract. Also known as sales commission. See also first-year commission, renewal commission.
committee underwriting	An underwriting approach in which a group of highly qualified people from inside and outside the underwriting function is called together for a case assessment. See also team underwriting.
common costs	See indirect costs.
common disaster clause	See survivorship clause.
common stock	A type of stock that usually entitles the owner to vote on the selection of board directors and on other important company matters and also entitles the owner to receive dividends on the stock, if they are declared. Contrast with preferred stock.
commutation right	In an annuity contract's payout period, the owner's option to withdraw a lump sum from the contract's remaining principal and from any growth of the principal of a variable contract, even while the contract owner is receiving annuity payments.
commutative contract	A contract under which the parties specify in advance the values that they will exchange, and the parties generally exchange items or services that they think are of relatively equal value. Contrast with aleatory contract.
comorbidity	The simultaneous appearance of two or more unrelated illnesses or conditions that may act in conjunction with one another.
compensatory damages	In a lawsuit, monetary awards intended to compensate the injured party for the amount of the monetary losses that resulted from the defendant's improper conduct. Also known as actual damages. Contrast with punitive damages.
competition laws	See antitrust laws.
competition risk	Any risk posed by direct competitors of a company, changes in an industry's structure, or changes in an industry's standards for the use of technology.
complaint examiner	In the United States, a state insurance department employee who is responsible for handling complaints received from consumers.
Complaints Database System (CDS)	In the United States, an information system that is maintained by the National Association of Insurance Commissioners and that provides state insurance departments with access to reports and aggregated data about complaints that have been filed against insurance companies and individuals involved in the business of insurance.
compliance	(1) The actions taken by an organization to operate in accordance with all applicable laws and regulations. (2) The functional area within an insurance company responsible for ensuring that the company adheres to applicable laws and regulations in each jurisdiction in which it does business.
compliance audit	An audit that verifies that a company's operations adhere to applicable laws and regulatory requirements and to the company's policies and procedures.
compound interest	Interest earned on both the principal amount of money and the accumulated interest. Contrast with simple interest.
compounding	The process of determining a future value when compound interest is applied. Contrast with discounting.
compounding period	Each of the interest periods used in future value calculations. Contrast with discounting period.
comprehensive business analysis	In the product development process, the stage in which a company evaluates all the factors that are likely to affect the design, production, pricing, marketing, and sales potential of a new product.
comprehensive examination	See comprehensive market conduct examination.
comprehensive market conduct examination	In the United States, a full-scope examination of all nonfinancial aspects of an insurer's operations conducted by a state insurance department. Also known as comprehensive examination. Contrast with target market conduct examination.
comprehensive personal liability insurance	Liability insurance that covers insureds from liability losses they incur that are not the result of practicing their profession or operating a vehicle.
comptroller	See controller.
concurrent beneficiary	Two or more life insurance beneficiaries who share the policy proceeds on the death of the insured; shares are distributed evenly unless otherwise provided.
concurrent control	An organizational control applied during a business process to monitor the process as it is being performed. Concurrent controls determine whether a process should proceed, requires corrective action, or must be stopped. Contrast with feedback control, steering control.
condition	See schedule.
conditional premium receipt	A premium receipt that specifies certain conditions that must be met before the temporary insurance coverage provided by the receipt becomes effective. See also approval premium receipt, insurability premium receipt. Contrast with binding premium receipt.
conditionally renewable policy	An individual health insurance policy that grants the insurer a limited right to refuse to renew the policy at the end of a premium payment period, as long as the reason for refusal is stated in the policy and is not related to the insured's health. An insurer can increase the premium rate for any class of conditionally renewable policies. See also cancellable policy, noncancellable policy, guaranteed renewable policy, optionally renewable policy.
conditionally vested commission	In insurance sales, a commission that becomes vested only after a producer reaches a certain age or number of years of service with the company.
Conduct Rule 2210	See Advertisement Rule.
Conduct Rule 2310	See Suitability Rule.
Conduct Rule 2821	In the United States, a Financial Industry Regulatory Authority conduct rule that significantly expands the suitability requirements contained in the Suitability Rule.
Conduct Rule 3010	See Supervisory Rule.
conservation	Efforts by a producer or an insurer to ensure that issued policies do not lapse but remain in force for as long as possible.
conservation unit	Within an insurance company, a group of personnel specially trained to conserve—or keep in force—insurance policies.
conservative financial strategy	A financial management strategy that emphasizes avoiding risks that, while potentially enhancing a company's profitability, could threaten its solvency. Contrast with aggressive financial strategy.
conservative fund	A mutual fund that has the objective of preservation of capital.
conservator	See receiver.
conservatorship	See receivership.
consideration	A requirement for the formation of a valid informal contract that is met when each party gives or promises something that is of value to the other party.
Consolidated Omnibus Budget Reconciliation Act (COBRA)	In the United States, a federal law that requires group medical expense insurance plans sponsored by employers with 20 or more employees to allow employees and certain dependents to continue their group coverage for a stated period of time following a qualifying event that causes the loss of group health coverage.
consolidation	As it relates to the financial services industry, the combination of financial services institutions within or across sectors.
constructive delivery of a policy	An insurance policy delivery that occurs when an insurer releases the policy with intent to be bound by it regardless of whether the policy is physically delivered to the applicant. For example, courts have found that constructive delivery occurs when a policy is mailed to an authorized agent of the insurer.
consumer credit report	A report prepared by a consumer reporting agency that (1) bears on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living and (2) is used or collected as a factor in establishing the consumer's eligibility for insurance or credit. Also known as a consumer report.
consumer finance company	A finance company that makes loans to people so that they can buy items such as furniture and appliances, make home improvements, and pay off small debts. Contrast with commercial finance company.
Consumer Price Index (CPI)	A number that results from comparing the average price of a "market basket" of goods and services at a specified point in time to the average price of the same market basket items at a different point in time.
consumer report	See consumer credit report.
consumer reporting agency	A private business that assembles or evaluates information on consumers and furnishes consumer reports to other people and organizations in exchange for a fee.
contact center	An organizational unit that provides a company's customers with a variety of channels for communicating with the company. Also known as call center, customer contact center, customer support center.
contest	In the context of insurance claim administration, a court action to determine the validity of a claim.
contestable claim	A claim for life insurance policy proceeds following the death of an insured during the policy's contestable period. See also contestable period.
contestable period	The time period (often two years) following policy issuance within which an insurer has the right to void a life insurance contract if the application for insurance contained a material misrepresentation. See also incontestability provision.
contingency plan	See business continuance plan.
contingency pricing structure	A variation in premium rate structures for individual life insurance products that gives an insurer mechanisms for adjusting its charges for an in-force product to reflect the financial results for the product.
contingency reserves	See special surplus.
contingency risks	See C (contingency) risks.
contingent annuitant	A person who becomes the annuitant of an annuity contract if the primary annuitant dies before annuity payments begin or during the payout period.
contingent beneficiary	The party named to receive a life insurance policy's proceeds if the primary beneficiary should die before the insured. Also known as a secondary beneficiary or successor beneficiary. See also primary beneficiary.
contingent deferred sales charge (CDSC)	See back-end load.
contingent payee	(1) The person or party who will receive any life insurance proceeds still payable at the time of the payee's death. Also known as the successor payee. (2) The person or other entity who will receive any remaining annuity payments upon the death of the payee.
continuation	For an insurance policy, an event that occurs either when (1) the provisions of an in-force policy are significantly modified or (2) a policy replaces an existing policy from the same direct writer. Additionally, a continuation of an insurance policy differs from a new policy in at least one of the following ways: the policy is not subject to the company's new business underwriting requirements; the direct writer does not pay full first-year commissions to the insurance producer; the policy does not introduce a new suicide exclusion period; or the policy does not introduce a new contestable period.
continuation coverage	(1) In the United States, group medical expense coverage that qualified employees elect to continue according to the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA). (2) The coverage provided to the customers of a failed insurance company under an assumption reinsurance arrangement.
continuation provision	A reinsurance agreement policy provision that addresses which reinsurer(s) should provide the reinsurance, the amount of reinsurance, and the effective date of reinsurance for continued policies.
continuous budget	See rolling budget.
continuous-premium whole life policy	A whole life insurance policy under which premiums are payable until the death of the insured. Sometimes referred to as a straight life insurance policy or an ordinary life insurance policy.
contract	A legally enforceable agreement between two or more parties; the agreement consists of a promise or a set of promises.
contract form	A standardized legal agreement between an insurer and customers that shows the terms, conditions, benefits, and ownership rights associated with a specific insurance or annuity product. See also policy form.
contract maintenance charge	For variable (unit-linked) life insurance and annuity products, a periodic charge assessed to cover general maintenance costs, such as preparation of account and other statements.
contract of adhesion	A contract that one party prepares and that the other party must accept or reject as a whole, without any bargaining between the parties as to the terms of the contract. Contrast with bargaining contract.
contract of indemnity	An insurance policy under which the amount of the policy benefit payable for a covered loss is based on the actual amount of financial loss that results from the covered event, as determined at the time of the event. For example, many medical expense policies are contracts of indemnity. Contrast with valued contract.
contract owner	The person or other entity who owns and exercises all the rights and privileges of an annuity contract.
contract under seal	See formal contract.
contractual benefit expenses	See expenses for contractual benefits.
contractual capacity	The legal capacity to make a contract.
contractual claim liability	The amount of money necessary to pay the claims actually incurred by an insured group during a specified period, typically one year.
contractual reserve	A liability that identifies the amount that, together with future premiums and investment earnings, represents the expected amount of future benefits payable on an insurer's in-force business. Also known as policy reserve, legal reserve, required reserve, statutory reserve, and tabular reserve. Contrast with noncontractual reserve.
contractual savings institution	A financial institution that acquires funds at periodic intervals on a contractual basis.
contribution margin	The difference between a product's total revenues and its total variable costs.
contributory plan	A group insurance plan under which insured group members must pay part or all of the premium for their coverage. Contrast with noncontributory plan.
control cycle	A repetitive process designed to ensure that all areas of a company adhere to the company's performance standards. See also concurrent control, feedback control, steering control.
controllable expense	A cost over which a specified manager or organizational unit has power and influence. Contrast with noncontrollable expense.
controlled business	Insurance written to cover a producer or the producer's family or the producer's business.
controller	The head of a company's accounting function. Also known as comptroller.
conventional mortgage	A mortgage in which the interest rate, term, and periodic payment amounts are all fixed in advance.
conversion privilege	(1) A term life insurance policy provision that allows the policyowner to change (convert) the policy to a cash value policy without providing evidence that the insured is an insurable risk. (2) A group life insurance policy provision that allows a group insured whose coverage terminates for certain reasons to convert her group life insurance coverage to an individual life insurance policy, usually without presenting evidence of her insurability.
convertible bond	A type of bond that can be exchanged for shares of the issuing company's common stock at the option of the bondholder.
convertible term insurance policy	A term life insurance policy that gives the policyowner the right to convert the term policy to a cash value life insurance policy.
cooling-off provision	See free-look provision.
coordination of benefits (COB) provision	A group medical expense insurance policy provision that is designed to prevent a group insured who is covered under more than one group medical expense policy from receiving benefit amounts that are greater than the amount of medical expenses the insured actually incurred.
copayment	A specified, fixed amount health insurance plan members must pay for specified services at the time the medical services are received.
corporate bond	A bond issued by a corporation. The risk associated with a corporate bond is based on the ability of the bond issuer to make interest payments and to repay the bond principal to the bondholder.
corporate governance	The responsibility and authority of a company's board of directors to direct the organization to properly fulfill its missions on behalf of the company's legitimate stakeholders in a legal and fiscally responsible manner.
corporate retention limit	The maximum amount of acceptable total retention under all lines of business that a group of affiliated companies will retain on any one person. Also known as combined retention.
corporation	A legal entity, separate from its owners, that is created by the authority of a government and that continues beyond the death of any or all of its owners. Contrast with partnership, sole proprietorship.
cost accounting system	An accounting subsystem that accumulates expense data for the dual purposes of effective cost control and accurate product design activities.
cost allocation	The accounting process of assigning an indirect cost to a particular cost object according to a formal procedure. Also known as expense allocation.
cost analysis	See expense analysis.
cost basis	In insurance, the total amount invested in an insurance or annuity contract. (1) For an insurance contract, the sum of all premiums paid, less withdrawals, dividends, and outstanding policy loans. (2) For an annuity contract, the portion of the annuity's accumulated value on which income tax has already been paid.
cost of benefits	For an insurance or annuity product, the value of the contractually required benefits that the product promises to pay. Also known as the cost of insurance.
cost of capital	The overall percentage cost the insurer pays for the funds it employs.
cost of insurance	See cost of benefits.
cost recovery rule	In the United States, a federal income tax rule stating that amounts withdrawn from an annuity are considered a return of the owner's cost basis first, and are therefore nontaxable, until the entire cost basis has been withdrawn. All subsequent withdrawals are considered earnings and are taxed as income. Also known as first-in-first-out rule.
cost-of-living adjustment (COLA) benefit	A disability income insurance benefit that provides for periodic increases in the disability income benefit amount that the insurer will pay to a disabled insured; these increases usually correspond to increases in the cost of living.
cost-volume-profit (CVP) analysis	A type of cost analysis used to determine how changes in product prices, sales volume, fixed costs, variable costs, and the type of products a company offers affects its profit. Also known as breakeven analysis or profit-volume analysis.
counterparty risk	For each party to a contract or business transaction, the potential that the other party to the contract or transaction will fail to fulfill its obligations.
coupon payment	An interest payment made by the bond issuer to the bondholder.
coupon rate	For a bond, the interest rate that determines the amount of periodic interest payments made to the bondholder.
covered person	See group insured.
CPI	See Consumer Price Index.
CPP	See Canada Pension Plan.
credibility factor	In group insurance, a percentage that represents the amount of weight given to a group's actual claim experience for premium rate calculation purposes. See also blended rating.
credit	(1) The financial service that enables people to purchase now by giving a promise to pay in the future. (2) A reduction from tax liability. (3) In accounting, a specified change made to the monetary value of a financial account. A credit increases the value of liability accounts, owners' equity accounts, and revenue accounts, whereas it decreases the value of asset accounts and expense accounts. (4) In the numerical rating system, a proposed insured's medical and nonmedical characteristics that have a favorable effect on mortality or morbidity and are sometimes assigned "minus" values (such as –25). Contrast with debit.
credit life insurance	A type of term life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid.
credit products	Financial products that enable owners to purchase products and services even if they do not have the entire purchase price on hand, and to either delay payment until funds are available or to spread the payment over time.
credit risk	The risk that either a party will default on its obligations to an insurer or an insurer will sustain a loss based on an adverse change in a party's creditworthiness. For example, a borrower's failure to repay a loan or otherwise meet a contractual obligation.
credit union	A nonprofit depository institution that does business only with its depositors—called members—who traditionally shared a common bond, such as an employer or their industry.
crediting rate	For a fixed deferred annuity or a fixed subaccount of a variable annuity, the interest rate applied to the customer's accumulation value.
crediting rate formula	A formula used in crediting interest to a customer's fixed deferred annuity account values, typically either the portfolio method or the new money method of crediting interest.
crediting-rate resolution	A formal declaration by the board of directors of the rate of interest the insurer will credit on customers' money held in interest-bearing products.
creditor insurance	Life insurance coverage designed to pay for the economic loss suffered by a creditor when a key person of a debtor business dies before the debt is paid. Also known as loan coverage or debt coverage.
critical illness (CI) benefit	See dread disease benefit.
cross-purchase agreement	A type of buy-sell agreement in which each partner agrees to purchase a share of a deceased partner's interest in the partnership by funding the agreement with an insurance policy on the life of each of the other partners. Contrast with entity agreement.
C-share annuity	A variable annuity that does not have a front-end or back-end load, but which typically has a higher mortality and expense risks charge than B-share, L-share, and A-share annuities. Also known as a no load annuity.
CSR	See customer service representative.
cumulative dividend	A type of preferred stock arrangement in which a company must pay in full any unpaid scheduled dividend on its preferred stock before it may pay any dividend on its common stock.
cumulative preferred stock	A type of preferred stock that requires the company to pay in full any unpaid scheduled dividends on its preferred stock before it may pay any dividends on its common stock.
currency of risk	The currency, specified in a reinsurance agreement, that is to be used in calculating the amount of risk reinsured. Also known as original currency.
currency risk	The risk that arises from changes in currency exchange rates.
current assets	Assets such as cash and readily marketable assets that can be converted to cash within one year. Also known as short-term assets. Contrast with current liabilities, long-term assets.
current interest rate	(1) For an annuity contract, the interest rate, based on the prevailing interest rates in the economy when the annuity is purchased, that an insurer promises to pay for a specified time period—usually one, three, or five years. (2) Generally, the prevailing interest rate in the economy at a given time.
current interest-crediting rate	The interest rate an insurer declares and pays if a fixed deferred annuity contract remains in force for a specified period of time. See also guaranteed interest-crediting rate and excess interest-crediting rate.
current liabilities	Debts that are expected to be paid within the following twelve months. Also known as short-term liabilities. Contrast with long-term liabilities, current assets.
current market value	An asset's selling price under current economic conditions. Also known as fair market value. Contrast with book value.
current mortality rate	In universal life (UL) products, the monthly mortality rate actually used to calculate the monthly mortality charge; is generally substantially lower than the guaranteed maximum mortality rate. See also guaranteed maximum mortality rate.
current open claimant	In a group insurance plan, a group insured who is receiving short-term or long-term disability income benefits.
current ratio	A financial ratio that divides a company's current assets by its current liabilities to measure its short-term debt-paying ability.
current yield	A measure of return on a bond calculated by dividing the bond's coupon rate by the bond's current market price.
custodial account	An account set up at a depository institution or other financial institution for the benefit of a minor or other person who lacks legal capacity.
customer contact center	See contact center.
customer service representative (CSR)	Any employee whose primary job responsibility is to support external customers by conducting two basic types of activities: (1) interacting with customers through face-to-face communications or through communications media, such as the telephone, fax, e-mail, or Internet chat sessions, and (2) processing transactions for customers.
customer support center	See contact center.
CVP analysis	See cost-volume-profit analysis.

D&O liability insurance	See directors and officers liability insurance.
daily benefit amount	Under a long-term care insurance policy, the maximum amount the insurer will pay for each day of an insured's long-term care at a care facility or in the patient's home.
damages	Monetary compensation that may be recovered by a plaintiff who has suffered a loss or injury as a result of a defendant's wrongful conduct; the basic legal remedy for most civil wrongs. See also compensatory damages, punitive damages.
date of expiry	In reinsurance arrangements, the date upon which the reservation of reinsurance facilities will be cancelled if the reinsurer does not receive a cession or placement information from the direct writer.
Day 1 functionality	The administrative and systems processes that must be in place and functioning before an insurance product can be introduced to market.
Day 2 functionality	The administrative and systems processes that are necessary at some future date to service and administer an insurance product, but which can be implemented after the product has been launched.
DD benefit	See dread disease benefit.
dealer	An institution that holds an inventory of securities and is always ready to buy and sell securities from its own account.
death benefit	(1) The amount of money paid by an insurer to a beneficiary when the person insured by a life insurance policy dies. Also known as the policy proceeds. (2) An annuity contract feature which states that, if the contract owner dies during the accumulation period, a named beneficiary will receive a benefit of at least as much as the accumulation value at the time of the contract owner's death. Also known as a survivor benefit or policy proceeds.
death certificate	A document that attests to the death of a person and bears the signature—and sometimes the seal—of an official authorized to issue such a certificate.
debenture	A bond that is not backed by collateral but only by the full faith and credit of the issuer. Also known as an unsecured bond. Contrast with a secured bond.
debit	(1) In accounting, a specified change made to the monetary value of an account; a debit increases the value of asset accounts and expense accounts, whereas it decreases the value of liability accounts, owners' equity accounts, and revenue accounts. (2) In the numerical rating system, a proposed insured's medical and personal risk factors that have an unfavorable effect on mortality and are assigned "plus" values (such as +25). Contrast with credit.
debit agent	See home service agent.
debit life insurance	See home service life insurance.
debt coverage	See creditor insurance.
debt security	A financial security that represents an obligation of indebtedness owed by a business, government, or an agency. Contrast with equity security.
debt-consolidation loan	A loan that combines all of one's high interest rate credit card debts into one loan that has a lower interest rate than the credit card rates.
debtor-creditor group	In group insurance, a group that consists of lending institutions, such as banks, credit unions, savings and loan associations, finance companies, retail merchants, and credit card companies, and their debtors.
debt-to-equity ratio	A financial ratio calculated by dividing a company's total long-term debt by its owner's equity, that is helpful in determining a company's solvency. See also leverage ratio.
debt-to-surplus ratio	A type of financial ratio calculated by dividing an insurer's total liabilities by its surplus. See also leverage ratio.
decedent	A person who has died.
declined class	See declined risk class.
declined risk class	In individual life insurance underwriting, a risk class composed of proposed insureds whose anticipated extra mortality is so great that an insurer cannot provide coverage at an affordable cost or whose mortality risk cannot be predicted because of recent or unusual medical conditions or other risk factors. Also known as declined class. Contrast with standard risk class, substandard risk class, and preferred risk class.
decreasing term life insurance	Term life insurance coverage that provides a policy benefit that decreases in amount over the term of coverage. Contrast with increasing term life insurance.
deductible	A flat dollar amount of eligible expenses that an insured must pay before the insurer begins making any benefit payments under an insurance policy. (1) In medical expense insurance policies, the deductible usually applies to the total of eligible medical expenses incurred during a period of time, such as a year. Other types of policies, such as property-casualty coverages, may have a per incident deductible. (2) In stop-loss insurance, the dollar amount of claims that an employer must pay for any individual in a stated period of time before the stop-loss insurer reimburses the employer for any excess amount. Also known as an individual deductible or a specific deductible.
deductible period	See elimination period.
deemer provision	A provision that many states in the United States include in their policy form filing requirements; if the state insurance department has not disapproved a policy form within a specified time, then the policy form is deemed to have been approved by the department.
default	A failure to meet a financial obligation.
default risk	The risk that an insurer will not receive the cash flows to which it is entitled because a party with which the insurer has a financial arrangement is late with payments or entirely fails to pay its obligations. Also known as invested asset credit risk. See also default.
deferred annuity	An annuity contract under which payment of periodic income benefits is deferred for a period of time, usually more than a year, after the contract is purchased. During this period of time, called the accumulation period, the owner's premium or premiums accumulate at interest. See also accumulation period. Contrast with immediate annuity.
deferred compensation plan	An employee benefit plan established by an employer to provide income benefits to an employee at a date later than the income was earned (such as after the employee's retirement).
deferred profit sharing plan (DPSP)	A type of retirement plan in Canada that allows employers to make contributions on behalf of employees that are related to profits; similar to qualified profit sharing plans in the United States.
defined benefit formula	A retirement plan benefit formula that specifies the amount of retirement benefit a plan sponsor promises to provide to each plan participant. Contrast with defined contribution formula.
defined benefit plan	A retirement plan structured using a defined benefit formula that specifies the amount of retirement benefit a plan sponsor promises to provide to each plan participant. Contrast with defined contribution plan.
defined contribution formula	A retirement plan benefit formula that specifies the level of contributions that the plan sponsor promises to make to the plan. Contrast with defined benefit formula.
defined contribution plan	A retirement plan structured according to a defined contribution formula that specifies the level of contributions that the plan sponsor promises to make to the plan. Contrast with defined benefit plan.
deflation	A fall in an economy's general price level. Contrast with inflation.
demutualization	The process an insurer undertakes to convert from a mutual form of ownership to a stock form of ownership. Contrast with mutualization.
dental expense coverage	Medical expense insurance coverage that provides benefits for routine dental examinations, preventive dental work, and dental procedures needed to treat tooth decay and diseases of the teeth and jaw.
dependent	For purposes of establishing eligibility for group insurance coverage, (1) a spouse or (2) an unmarried child who is under a specified upper age limit, or a disabled child of any age, who relies on the group member for financial support and maintenance.
dependent coverage	Group insurance coverage on spouses and dependent children of insured group members.
deposit administration contract	A type of retirement plan funding vehicle in which a plan sponsor deposits assets with an insurer and the assets are placed in the insurer's general investment account. Upon a plan participant's retirement, the insurer applies funds from the general account to provide an immediate annuity for the retiree.
deposit-based commission schedule	For annuity sales, a commission schedule that pays commissions only on premium payments made by annuity owners. Contrast with asset-based commission schedule.
depository institution	A financial services company, such as a commercial bank or thrift institution, that engages in the retail banking activities of accepting deposits from individuals and making loans.
depreciation	(1) In general, a decline in the price or value of an investment. Contrast with appreciation. (2) In accounting, the process of allocating (spreading) the cost of an asset over the asset's estimated useful life; depreciation typically applies to an insurer's long-term assets such as buildings and other real estate. Compare to amortization.
derivative	A financial security, such as a stock option, that derives its investment value from another security.
desk audit	In reinsurance, the systematic and ongoing review of a direct writer's quality of administration, performed by the reinsurer's staff at the reinsurer's own offices.
development expense	An expense an insurer incurs in designing, testing, and implementing a new product or product line.
DFA	See dynamic financial analysis.
DI insurance	See disability income insurance.
diagnostic and treatment codes	Numbers and words that represent specific medical diagnoses and treatments and are used by health care providers to communicate medical information about medical expense claims to insurers.
direct costing	See marginal costing.
direct costs	In accounting, a cost incurred for or physically traceable to one specific product, line of business, department, or other cost object. Contrast with indirect costs.
direct premium	In reinsurance, the direct writer's premium on the original policy.
direct response advertising	A type of product advertising designed to encourage customers to take action immediately, either by purchasing a product or requesting additional information about a particular product or service.
direct response distribution system	A type of distribution channel often used in insurance sales in which customers purchase products directly from a company by responding to advertisements, Internet Web sites, or telephone solicitations.
direct response policy	A life insurance policy, distributed through a direct response system, which may be fully underwritten, underwritten on a nonmedical basis, or underwritten on a guaranteed-issue basis.
direct rollover	The transfer of funds from one tax-advantaged retirement plan to another when the transfer occurs directly between two financial institutions and the owner or plan participant does not actually receive the funds.
direct writer	In a reinsurance transaction, the insurance company that purchases reinsurance to transfer all or part of the risks on insurance policies the company issued. Contrast with reinsurer. Also known as ceding company.
director of insurance	See insurance commissioner.
directors and officers (D&O) liability insurance	A type of liability insurance that covers directors and officers of a corporation for their own liability resulting from failing to exercise the appropriate standard of care when discharging their corporate duties.
disability buyout coverage	Disability income insurance coverage that provides benefits designed to fund the buyout of a partner's or owner's interest in a business should he become disabled.
disability income (DI) insurance	A type of health insurance that provides income replacement benefits to an insured who is unable to work because of illness or injury.
disability income benefit	A supplemental life insurance policy benefit that provides a monthly income benefit if the insured becomes totally disabled while the policy is in force. Typically, the amount of the monthly disability income benefit is a stated dollar amount—such as $10—per $1,000 of life coverage.
disaster recovery plan	See business continuance plan.
disbursements	(1) In general usage, any payments of money. (2) For annuity contracts, payments insurers make from deferred annuity contracts during the accumulation period. Also known as distributions.
disclaimer of opinion	A type of nonstandard auditor's opinion indicating that the auditor has no opinion on the financial statements; disclaimers may be disallowed under international financial reporting standards (IFRS).
disclosure document	In annuity sales, a written document that identifies and describes the specific annuity being considered for purchase.
disclosure statement	A written statement providing nontechnical explanations of the operation, statutory requirements, and income tax consequences of an individual retirement annuity.
discount	For bonds, the difference between a bond's market value and its par value when the market price is less than the par value.
discount bond	A coupon bond that has a current market value that is lower than the bond's principal or par value but that pays the full value of the bond to the holder at maturity. Contrast with premium bond.
discount broker	An investment broker offering reduced fees for stock trades, but who generally offers little, if any, investment advice or investing tools.
discounting	The process of converting a future value to its present value. Contrast with compounding.
discounting period	Each of the interest periods used in present value calculations. Contrast with compounding period.
discretionary group	In the United States, any type of group other than a single employer group, a debtor-creditor group, a labor union group, a multiple employer group, an association group, or a credit union group that has been approved for group insurance coverage by the applicable state insurance department.
disinflation	A decrease in the rate of inflation. See also inflation.
disputed claim	A claim that an insurer has thus far refused to pay but that it may pay in the future. Also known as a resisted claim.
dissolution	The termination of a corporation's legal existence.
distributions	See disbursements.
diversifiable risk	Risks that are specific to an individual asset or issuer. Also known as nonsystematic risk or specific risk.
diversification	A defensive principle of investment portfolio construction that involves balancing the selection of portfolio assets among a variety of types of securities or industries. Diversification spreads risk across many risk characteristics to reduce the effect of any one risk.
diversification criteria	Rules stating limits on the portion of an investment portfolio that may be invested in a stated asset class. Also called limitations on asset concentrations or asset allocation criteria.
dividend	See stockholder dividend.
dividend accumulations option	A policyowner dividend payment option that allows a policyowner to elect to leave policyowner dividends on deposit at interest with the insurer.
dividend addition	An additional amount of life insurance that a policyowner purchases with policy dividends. Also known as paid-up addition. See also policy dividend.
dividend options	Specified methods by which the owner of a participating life insurance policy or participating annuity may receive policy dividends.
dividend provision	A provision included in participating life insurance or annuity contracts that describes the contract owner's right to share in the insurer's divisible surplus, if any, and describes the options available for receiving policy dividends.
dividend yield	The annual percentage return earned by dividends on a common or preferred stock.
divisible surplus	The portion of an insurance company's earnings that is available for distribution to the owners of participating policies after the company sets aside funds for contractual obligations, operating expenses, contingencies, and general business purposes.
doctrine of reasonable expectations	A legal doctrine under which the courts interpret the terms of an insurance contract in such a way as to honor the reasonable expectations of the individual who purchased the policy even if the language of the contract does not literally support these expectations.
doctrine of substantial compliance	A legal doctrine which provides that when a policyowner has done everything possible to comply with the beneficiary change procedure set forth in the policy, but has failed because of circumstances beyond his control, the change will be considered effective.
Dodd-Frank Act	See Dodd-Frank Wall Street Reform and Consumer Protection Act.
Dodd-Frank Wall Street Reform and Consumer Protection Act	In the United States, a federal law designed to protect investors by requiring more transparency and accountability by financial services companies. Also known as the Dodd-Frank Act.
dollar cost averaging	An investment strategy that involves investing a fixed dollar amount in one or more financial instruments on a regular, periodic basis, regardless of the current values of the selected instruments.
domestic corporation	From the point of view of a given state in the United States, a corporation that was incorporated within that jurisdiction. Contrast with alien corporation and foreign corporation.
domicile	The jurisdiction in which a company incorporates.
domiciliary state	See state of domicile.
double indemnity benefit	An accidental death benefit that is equal to the face amount of a life insurance policy, and that becomes payable if the insured's death is accidental.
downstream holding company	A holding company that is owned or controlled by the company that forms it and that in turn owns or controls other companies. Contrast with upstream holding company.
DPSP	See deferred profit sharing plan.
dread disease (DD) benefit	An accelerated death benefit under which the insurer agrees to pay a portion of the policy's face amount in a lump sum to the policyowner if the insured suffers from one of a number of specified diseases. Also known as a critical illness benefit.
drop notice	A written notification from a direct writer to a reinsurer stating that the direct writer no longer needs reinsurance that it previously requested and asking the reinsurer to cancel the reservation. Also known as a close notice.
DST	See dynamic solvency testing.
dual control	See segregation of duties.
duration	A statistic that measures the price sensitivity of an asset to changes in interest rates.
duration gap report	A report that describes the results of duration analysis of an insurer's investment and product portfolios; provides a snapshot of the insurer's asset-liability match at the time of the report.
duration matching	A strategy that involves matching the duration statistics for fixed-income assets such as bonds with the duration statistics for the products that the assets support.
duration of the agreement provision	A reinsurance agreement policy provision that addresses when the reinsurance agreement becomes effective and when it ends.
dynamic assumptions	In product modeling, variables that change over time, but in a way that is predictable and formula driven. Contrast with fixed assumptions.
dynamic budget	See flexible budget.
dynamic financial analysis (DFA)	The use of simulation modeling and multiple scenario testing to project into a future period an insurer's assets, liabilities, and owners' equity as of a given valuation date and to compare the values of those variables at various times after the valuation date.
dynamic solvency testing (DST)	An application of dynamic financial analysis that involves projecting into a future period an insurer's capital as of a given valuation date and comparing the projected amounts of capital at various times after the valuation date. Also known as capital adequacy testing. See also dynamic financial analysis.

E&O insurance	See errors and omissions insurance.
early-warning financial ratio tests	In Canada, a set of ratios used by regulators to analyze insurers' financial statements.
earmarked surplus	See special surplus.
earnings	(1) Profits that are made through either labor or increases in the value of investments. (2) For an insurance or annuity product, the amount that a product adds to the insurance company's capital in a given period; takes into account noncash adjustments, such as a product's contribution to capital.
earnings enhanced death benefit (EEDB)	An enhanced death benefit that can be added to a variable annuity. The EEDB benefit provides that the death benefit will equal either the contract's accumulated value at the time of the contract owner's death or an enhanced benefit based on (1) the performance of the separate accounts, (2) the age of the contract owner when the contract was issued, and (3) the number of years the contract has been in force at the time of the contract owner's death. Also known as an enhanced earnings benefit (EEB).
earnings first rule	A United States federal tax rule stating that any amount that the contract owner withdraws from an annuity contract is treated as a withdrawal of earnings, which is taxable income, until the contract owner has withdrawn all of the earnings in the contract. Thereafter, withdrawals are treated as a return of the contract owner's cost basis. Also known as the interest first rule or last-in-first-out (LIFO) rule.
earthquake insurance	A form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property.
economic capital	An estimate of the amount of capital that a financial institution calculates to internally manage its own risks. Also known as internal capital. Contrast with regulatory capital and rating agency capital.
economic indicator	A statistical variable that demonstrates the direction of an economy. See also leading indicator, coincident indicator, and lagging indicator.
EEB	Enhanced earnings benefit; see earnings enhanced death benefit.
EEDB	See earnings enhanced death benefit.
effective interest rate	Interest rate or rate of return that includes the effects of compounding. Also known as the annual percentage rate (APR). Contrast with nominal interest rate. See also interest rate.
effective rate of return	The actual rate of return on a bond, if the purchase price differs from the bond's par value; obtained by dividing the annual bond interest by the bond's stated interest rate. Also known as effective yield.
effective yield	See effective rate of return.
EIA	See equity indexed annuity.
electronic insurance application	A technology that allows an applicant, sometimes in conjunction with a producer, to complete an application for insurance online and submit the application directly to an insurer's new business processing system.
electronic signature	A unique personal identifier that makes a legally binding contract using electronic communications media like the Internet.
eligibility period	In contributory group insurance plans, the period of time—usually 31 days—during which eligible group members may enroll for the contributory group insurance coverage without having to provide evidence of insurability. Also called the enrollment period.
eligibility requirement	In employee benefits, any condition that an employee must satisfy in order to participate in an employer-provided employee benefit plan, such as group life insurance, group health insurance, or a retirement plan.
elimination period	(1) In disability income insurance policies, the specific amount of time that the insured must be disabled before becoming eligible to receive disability income benefit payments from the insurance company. (2) In long-term care insurance, the specific amount of time the insured must be receiving long-term care before becoming eligible to receive long-term care benefit payments from the insurance company. The longer the elimination period in a policy, the lower the premium for the policy. Also known as a waiting period, benefit waiting period, or deductible period.
embedded value (EV)	A measure of the economic worth of a life insurance company. EV is equal to the present value (PV) of expected future distributable profits pertaining to in-force covered business, after sufficient allowance is made for the aggregate risks represented by this business. EV is a conservative value because it excludes any value attributable to future new business.
employee benefits	Additional programs and services offered by an employer to an employee in addition to compensation.
employee class	In group insurance, a group of employees categorized by position, earnings, or rank for purposes of determining eligibility for coverage and benefit levels.
Employee Retirement Income Security Act (ERISA)	A United States federal law designed to protect covered employees by ensuring that employee benefit plans meet specified requirements. For example, ERISA requires employers to inform their employees about their pension and certain other benefits in a manner that an average employee can understand.
employer-employee group	For group insurance purposes, a group that consists of employees of a particular employer or the employees in any designated class of employees.
endorsement	See policy rider.
endorsement method of beneficiary change	A method of changing the beneficiary of a life insurance policy under which the policyowner must submit his policy to the insurer along with a beneficiary change request. Contrast with recording method of beneficiary change.
endowment insurance	A type of life insurance that provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.
enhanced earnings benefit (EEB)	See earnings enhanced death benefit.
enrollment period	See eligibility period.
enterprise risk management (ERM)	A system that identifies and quantifies risks from both potential threats and potential opportunities and manages these risks in a coordinated approach that supports the organization's strategic objectives.
entire contract provision	(1) A life insurance, health insurance, and annuity policy provision that defines which documents constitute the contract between the insurer and the policyowner. (2) A reinsurance agreement policy provision that states that the reinsurance agreement represents the whole agreement between the parties, and that they have no further agreement than that stated in the written document.
entity agreement	A method of carrying out a partnership buy-sell agreement under which the partnership agrees to purchase the share of any partner who dies and to distribute a proportionate share of that ownership interest to each of the surviving partners. Contrast with cross-purchase agreement.
EOB	See explanation of benefits.
equity	An ownership interest in an asset. For real estate assets, the ownership interest is found by subtracting the amount of any outstanding mortgage from the market value of the property.
equity indexed annuity (EIA)	A type of annuity product that guarantees the owner a minimum interest rate and also guarantees that the value of the annuity will never fall below a stated minimum as long as the contract is maintained for a specified period. In addition, the annuity offers the potential for additional interest earnings linked to the performance of a published market index of securities values. Also known as fixed indexed annuity, indexed annuity.
equity risk	The risk arising from movements in the direction of the stock market. See also market risk.
equity security	A security that represents an ownership interest in the issuing company. Contrast with debt security.
ERISA	See Employee Retirement Income Security Act.
ERM	See enterprise risk management.
errors and omissions (E&O) insurance	Insurance that protects an insurance producer against financial liability for any negligent acts or mistakes but does not cover a producer for intentional acts or wrongdoings.
escape clause	See bailout provision.
escrow account	A trust account used to pay property maintenance expenses, property taxes, and other expenses related to a mortgaged property.
estate	The accumulated assets that an individual owns when he dies.
estate planning	A type of planning in which a producer helps a potential customer to develop a program that will cover the customer's current and future financial needs and will provide a means of conserving, as much as possible, the personal assets the person wants to pass on to her heirs at her death. See also advanced underwriting.
ETS	See Examination Tracking System.
EV	See embedded value.
evergreening	A term that annuity insurers use to describe the annual delivery of an updated prospectus to variable annuity contract owners.
evidence of insurability	Proof that an insurance underwriter requires to determine that a proposed insured meets the insurer's health and lifestyle requirements and is an insurable risk.
evidence of insurability provision	A group life and health insurance policy provision that specifies the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of individual insurability satisfactory to the insurer as a condition to part or all of his coverage.
Examination Tracking System (ETS)	An electronic system developed by the National Association of Insurance Commissioners in the United States to help streamline examination scheduling by allowing states to schedule and coordinate market conduct and financial condition examinations.
examining physician	A physician who performs an examination of a proposed insured at the request of an insurance company to provide information for the underwriting process. Contrast with attending physician.
exception-based underwriting	A technology that integrates expert systems with electronic applications so that all insurance applications, except the most difficult ones that require an underwriter to take part in the decision-making process, are processed electronically.
excess interest-crediting rate	For fixed deferred annuities, the amount by which the current interest-crediting rate exceeds the guaranteed interest-crediting rate. See also current interest-crediting rate and guaranteed interest-crediting rate.
excess quota share arrangement	A reinsurance arrangement for assigning risk in which the direct writer keeps its full retention limit and cedes the remaining risk to two or more reinsurers on a percentage basis.
excess-of-loss ratio reinsurance	See stop-loss reinsurance.
excess-of-loss reinsurance	A type of nonproportional reinsurance in which a reinsurer is responsible for paying the amount of a claim above a predetermined limit.
excess-of-retention arrangement	A proportional reinsurance arrangement in which the direct writer establishes a dollar amount as its retention limit and the reinsurer agrees to assume monetary amounts greater than the direct writer's specified retention limit, up to the reinsurer's automatic binding limit.
excess-of-time reinsurance	See extended-time reinsurance.
exchange fee	A mutual fund fee for transferring money from one mutual fund to another within the same fund family.
exclusion	An insurance policy provision that describes circumstances under which the insurer will not pay the policy's benefit following an otherwise covered loss. For example, a life insurance policy may exclude payment of the policy's benefit when the insured commits suicide within a specified time after policy issue. See also limitation and reduction.
exclusion ratio	In the United States, a formula used to determine the portion of a fixed periodic income payment that can be excluded from taxable income.
exclusion rider	See impairment rider.
exclusive agent	See career agent.
exculpatory statutes	In the United States, state laws that permit an insurer to pay life insurance proceeds according to the terms of a policy without fear of double liability.
ex-date	See ex-dividend date
ex-dividend date	The date used for determining whether a stockholder is eligible to receive a declared dividend on stock. Also known as ex-date.
execution of transactions as authorized	The element of a company's internal control system that concerns the delegation of authority to perform specified tasks and the communication of that authority.
executor	A personal representative who is responsible for settling the estate of a person who died with a valid will.
exhibit	See schedule.
expected claim experience	For purposes of group insurance underwriting, the dollar amount of claims an insurer estimates the proposed group will submit during the upcoming policy year.
expected morbidity	The number of sicknesses and injuries predicted to occur in a specified group of people at a given age.
expected mortality	The number of deaths predicted to occur in a specified group of people at a given age. Contrast with assumed mortality.
expense	An amount that a company spends in the course of conducting business. Contrast with revenue.
expense allocation	See cost allocation.
expense allowance	See allowance.
expense analysis	The process of determining which costs are associated with particular activities to help managers decide if a cost is worth the value the activity provides. Also known as cost analysis.
expense risk	The risk that actual expenses will be higher than expectations, causing the insurer to lose money on its products; a type of pricing risk.
expenses for contractual benefits	The total amount that an insurer must pay to fulfill the terms of its insurance and annuity contracts. Also known as contractual benefit expenses.
experience mortality rate	The historical rate of death in a given cohort.
experience rating	A method of setting group insurance premium rates under which the insurer considers the particular group's prior claims and expense experience. Contrast with manual rating and blended rating.
experience refund	(1) In group insurance, the portion of a group insurance premium that is returned to a group policyholder if the group's claim experience during the year was more favorable than expected when the premium was calculated. Also known as a premium refund. (2) In reinsurance, an amount credited by a reinsurer to a direct writer as compensation for the reinsurer's lower than expected mortality experience.
explanation of benefits (EOB)	In medical expense insurance, a document that may be sent by an insurer to a patient explaining what was covered for a medical service, and how payment amount and patient responsibility amount were determined.
express authority	Actual authority that a principal explicitly confers on an agent.
extended term insurance nonforfeiture option	A cash value life insurance policy nonforfeiture option under which the policyowner discontinues paying premiums and uses the policy's net cash surrender value to purchase term insurance for the full coverage amount provided under the original policy, for as long a term as the net cash surrender value can provide.
extended-time reinsurance	A type of nonproportional reinsurance in which the reinsurer takes over paying policy benefits after the direct writer has paid policy benefits for a specified amount of time. Also known as excess-of-time reinsurance.
extension request	A request from a direct writer to a reinsurer to extend the direct writer's reservation of capacity for a specified period so that the direct writer can gather all information needed to move the case from reserved to placed status.
external audit	An examination of a company's records, policies, or procedures conducted by parties not associated with the company. Also known as an independent audit. Contrast with internal audit.
external replacement	A replacement in which the new individual life insurance policy or annuity contract is purchased from an insurer other than the insurer that issued the policy or contract being replaced. Contrast with internal replacement.
extra-percentage premium rate table	A type of substandard extra premium rate table, designed for application to a constant extra risk, that shows premium rates that are a certain percentage greater than the insurer's standard premium rates.

face amount	(1) For a life insurance policy, the amount of the policy benefit that is payable if the insured dies while the policy is in force. Contrast with cash surrender value. (2) For a bond or other debt security, the amount stated on the security. Also known as face value, par value.
face value	For a life insurance policy, see face amount. For a bond, see par value.
facility of payment provision	A life insurance policy provision which states that, under specified conditions, the insurer may pay policy benefits to the executor or administrator of the insured's estate, relatives of the insured, or any other person who is equitably entitled to the benefits or has incurred expenses for the care or burial of the insured.
fac-ob reinsurance	See facultative-obligatory reinsurance.
factor table	A chart used by insurance underwriters that shows the maximum amount of insurance—expressed in multiples of a person's salary or current gross earned income—that an insurer typically will approve in each of several age ranges.
facultative application	See request for coverage.
facultative reinsurance	A reinsurance arrangement in which a direct writer chooses whether to cede a risk and a reinsurer chooses whether to accept that risk. A reinsurer has no obligation to submit a quote for a case submitted on a facultative basis. Contrast with automatic reinsurance and facultative-obligatory reinsurance.
facultative-obligatory (fac-ob) reinsurance	A reinsurance arrangement in which (1) the direct writer may choose to submit specific cases to the reinsurer and (2) the reinsurer must accept the cases based on the direct writer's underwriting, up to a stated maximum amount, if the reinsurer has available financial capacity. Contrast with automatic reinsurance, facultative reinsurance.
Fair Credit Reporting Act (FCRA)	A United States federal law that regulates the reporting and use of consumer information and seeks to ensure that consumer reports contain only accurate, relevant, and recent information.
fair market value	See current market value.
Family and Medical Leave Act (FMLA)	Federal legislation in the United States that requires companies with 50 or more employees within a 75-mile radius to grant eligible employees an unpaid leave of up to 12 weeks for family and medical emergencies, including childbirth, adoption, and illness of a child, spouse, parent, or the employee.
family benefit	A supplemental term life insurance benefit that can be added to an individual cash value life insurance policy to insure the lives of the insured's spouse and children.
family income coverage	A plan of decreasing term life insurance that provides to the beneficiary a stated monthly income benefit amount if the insured dies during the term of coverage.
family income policy	A cash value life insurance policy with a decreasing term insurance benefit. The proceeds of the cash value policy are usually paid as a lump sum when the insured dies. Then the policy provides a stated monthly income benefit amount for a predetermined period to the insured's beneficiary—typically the surviving spouse.
family insurance rider	See spouse and children's insurance rider.
family policy	A cash value life insurance policy that includes term life insurance coverage on the primary insured's spouse and children.
FASB	See Financial Accounting Standards Board.
FAST system	See Financial Analysis and Solvency Tracking System.
favorable deviation	In insurance operations, a difference between actual and assumed values that produces an increase in actual profitability relative to assumed profitability; such a deviation requires no corrective action. Contrast with adverse deviation.
favorable variance	In budgeting, an accounting result in which actual revenues are greater than expected revenues and/or actual expenses are less than expected expenses. Contrast with unfavorable variance.
FCRA	See Fair Credit Reporting Act.
FDIC	See Federal Deposit Insurance Corporation.
FDQS arrangement	See first-dollar quota share arrangement.
Fed, the	See Federal Reserve System.
Federal Deposit Insurance Corporation (FDIC)	In the United States, a federal agency that protects customer deposits up to a maximum limit in the event the financial institution defaults on its deposit products, such as savings accounts, checking accounts, money market accounts, and Certificates of Deposit (CDs).
Federal Reserve System	In the United States, the federal banking system that is made up of 12 regional banks and member state and national banks and is designed, among other things, to supervise and regulate member banks and protect the credit rights of consumers. Often referred to as the Fed.
Federal Trade Commission (FTC)	A U.S. federal regulatory agency that enforces antitrust and trade practices laws. The FTC is empowered to, among other things, (1) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (2) seek monetary redress and other relief for conduct that injures consumers; (3) adopt trade regulation rules to define specific acts or practices that are unfair or deceptive and establish requirements designed to prevent such acts or practices; (4) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (5) make reports and legislative recommendations to Congress.
feedback control	An organizational control applied to a business process at the end of the process cycle to compare actual performance or output with established standards. Contrast with concurrent control and steering control.
feedforward control	See steering control.
FHC	See financial holding company.
FICO® Score	The most widely known credit score created by Fair Isaac Corporation, it is a numerical grade predicting the risk that a borrower poses to a financial institution.
fidelity bond	An indemnity insurance agreement guaranteeing to the purchaser the coverage of a financial loss caused by (1) the act or default of a third party, such as an employee, or (2) some contingency, such as fire, over which the third party may have no control.
fiduciary	An individual or entity who holds a special position of trust or confidence when handling the affairs of another and who must put the other's interest above the fiduciary's own interests.
field advisory council	A group of producers designated to represent and provide feedback from the sales force on such topics as product design and customer service.
field force	The collective term for an insurer's affiliated agents.
field issue	See instant issue.
field office	An office in which an insurer's affiliated agents work. Also known as an insurance agency. Contrast with home office.
field underwriting	The first step in the risk selection process for insurance. During this step, producers gather initial information about applicants and proposed insureds to determine if they are likely to be approved for a specific type of insurance coverage.
field underwriting manual	A manual that guides a producer in (1) assessing the risks a proposed insured represents and in (2) assembling and submitting the application and any required evidence of insurability.
field underwriting standards	Criteria for sales producers to use for pre-screening life insurance applicants.
FIFO rule	first-in-first-out rule. See cost recovery rule.
file and use requirement	A policy enacted by some states in the United States that allows an insurer to use an insurance policy form, without prior approval from regulatory authorities, after the form has been filed with the state insurance department.
finance charge	The total cost of credit paid by a borrower for a loan, expressed as a dollar amount.
finance company	A financial institution that specializes in making short- and medium-term loans to businesses and to people. See also commercial finance company, consumer finance company.
financed purchase	In insurance, the purchase of a new insurance contract for which the owner pays premiums or intends to pay premiums with funds taken from another contract.
financial (capital) market	A market in which money is transferred from savers to borrowers.
financial accounting	A field of accounting that focuses primarily on reporting a company's financial information to meet the needs of the company's external stakeholders, such as regulators and investors. Contrast with management accounting.
Financial Accounting Standards Board (FASB)	A private organization, funded by the accounting profession and companies with an interest in accounting practices, that establishes and promotes the use of generally accepted accounting principles (GAAP) in the United States.
financial analysis	The study of financial statement values for the purpose of assessing a company's financial condition or performance.
Financial Analysis and Solvency Tracking (FAST) System	In the United States, a system used to evaluate the solvency of insurers; based on (1) ratio analysis of an insurer's most recent financial statements and (2) analysis of a five-year history of specific aspects of the insurer's financial statements.
financial audit	An evaluation of whether a company's financial information, financial statements, and source documents comply with accounting standards and are a fair and consistent depiction of the company's financial condition and performance.
financial capacity	The total monetary amount of risk an insurance company can accept based on the capital it has available to write new business. Contrast with underwriting capacity.
financial condition examination	In the United States, the part of an onsite regulatory examination that investigates two broad aspects of an insurer's operations: (1) whether the insurer's accounting records are accurate and the insurer is being operated on a sound and lawful basis and (2) whether the insurer's financial and business profiles contain any apparent hazards to the insurer's solvency. Contrast with market conduct examination.
financial consultant	In a bank-distributed system of insurance sales, a person whose primary function is to sell investment products to bank customers, but who is also licensed to sell insurance.
financial design	See technical product design.
financial factor	See financial risk factor.
financial hazard	In the underwriting of insurance, the likelihood that a person who purchases more insurance than he can afford may have an ulterior motive in doing so; or that he may ultimately not be able to afford the premiums for the policy, resulting in the policy lapsing.
financial holding company (FHC)	A holding company that conducts activities that are financial in nature or incidental to financial activities, such as insurance activities, securities activities, banking, and investment and advisory services.
Financial Industry Regulatory Authority (FINRA)	In the United States, a nongovernmental self-regulatory organization empowered by the Securities and Exchange Commission (SEC) to license, investigate, and regulate securities dealers and their representatives.
financial institution	A business that owns primarily financial assets, such as stocks and bonds, rather than fixed assets, such as equipment and raw materials. Also known as a financial services company.
financial institution distribution system	A type of distribution channel for insurance products in which financial institutions—such as broker-dealers, banks, and even competing insurance companies—sell an insurer's products to their own customers.
financial intermediary	An organization that collects funds from one group of people, businesses, and governments, known as suppliers, and channels them to another group, known as users. Insurance companies are financial intermediaries.
financial leverage	The effect whereby incurring fixed financing costs, usually borrowed funds, automatically magnifies a company's risks and potential returns.
financial model	A computer-based mathematical model that approximates the operation of real-world financial processes.
financial planner	A professional who analyzes a customer's personal financial circumstances and goals and prepares a program designed to help the customer achieve those goals.
financial ratio	A percentage amount that expresses a relationship between two pieces of financial information.
financial ratio analysis	The process of calculating the relationships between various pairs of financial statement values for the purpose of assessing a company's financial condition or performance.
Financial Regulation Standards and Accreditation Program	In the United States, a National Association of Insurance Commissioners program which states can use to demonstrate to other states that their solvency regulation systems meet specified minimum standards and that their systems are adequate and effective.
financial reinsurance	See finite reinsurance.
financial reporting	The process of presenting financial data about a company's financial position, operating performance, and flow of funds into and out of the company.
financial risk characteristic	See financial risk factor.
financial risk factor	Financial information that an underwriter considers to determine whether a person is applying for more insurance than he reasonably needs or can afford. Also known as a financial factor and a financial risk characteristic.
financial services company	See financial institution.
financial services industry	An industry that offers financial products and services to help individuals, businesses, and governments meet their financial goals of protecting against financial losses, accumulating and investing money and other assets, and managing debt and payments.
Financial Services Modernization Act (FSMA)	See Gramm-Leach-Bliley Act.
Financial Stability Oversight Council (FSOC).	A U.S. independent agency created by the Dodd-Frank Act that is responsible for monitoring the safety and stability of the nation's financial system, identifying systemic risks to the system, and coordinating regulatory responses to any threats to the system.
financial statement	A summary report of a company's financial condition on a specified date or of its performance during a specified period. See also balance sheet, income statement.
financial underwriting	During the underwriting of insurance, an assessment of a proposed insured's financial condition to determine whether (1) the proposed insured needs the coverage applied for, (2) a reasonable relationship exists between the need for the coverage and the amount of coverage applied for, and whether (3) the applicant can afford the coverage.
finite reinsurance	A form of indemnity reinsurance that allows the direct writer to improve its financial position by the timing of and method by which it transfers risk to a reinsurer. Usually, finite reinsurance is intended to be a temporary arrangement, and its primary purpose is to enable the direct writer to transfer expenses and profits to the reinsurer. Also known as financial reinsurance. Contrast with indemnity reinsurance.
FINRA	See Financial Industry Regulatory Authority.
FINRA Conduct Rule 2210	See Advertisement Rule.
FINRA Conduct Rule 2310	See Suitability Rule.
FINRA Conduct Rule 2821	See Conduct Rule 2821.
FINRA Conduct Rule 3010	See Supervisory Rule.
FINRA Conduct Rules	A set of rules developed by the Financial Industry Regulatory Authority in the United States to ensure that companies and people engaged in securities transactions treat customers fairly and equitably. See also Financial Industry Regulatory Authority.
first beneficiary	See primary beneficiary.
first mortgage	A mortgage obtained for the initial purchase of a house. See also second mortgage.
first-dollar coverage	Medical expense coverage under which the insurer begins to reimburse the insured for eligible medical expenses without first requiring an out-of-pocket contribution from the insured.
first-dollar quota share (FDQS) arrangement	In reinsurance, a method for assigning risk in which the direct writer retains a stated percentage of the risk for each policy in a given block of business, up to its retention limit, and cedes the remaining risk to one or more reinsurers.
first-in-first-out (FIFO) rule	See cost recovery rule.
first-to-die life insurance	See joint whole life insurance.
first-year commission	For a life insurance policy, a commission equal to a stated percentage of the amount of the premium an insurer receives during the first policy year. See also commission. Contrast with renewal commission.
fixed amount option	(1) A life insurance policy settlement option under which the insurance company uses the policy proceeds plus interest to pay the beneficiary a preselected amount in a series of installments for as long as the funds last. (2) An annuity contract payout option under which the insurer provides periodic income payments of at least a specified minimum amount for as long a period as the annuity's accumulated value will provide, regardless of whether the annuitant is living
fixed annuity	An annuity contract under which the insurer guarantees the minimum interest rate that will be applied to the annuity's accumulated value during the accumulation period and the minimum amount of the periodic income payments that will be paid during the payout period. Contrast with variable annuity.
fixed assumptions	In product modeling, variables for which actuaries assign a specific value or proportional relationship and for which the value or proportion remains unchanged throughout multiple iterations of a model. Also known as constants. Contrast with dynamic assumptions.
fixed budget	See static budget.
fixed cost	A business cost that remains relatively constant regardless of the level of operating activity or production. Contrast with variable cost.
fixed dividend	A dividend on preferred stock that is fixed in both the dividend payment amount and the dividend payment schedule.
fixed fund option	For variable insurance and annuity products, an option that guarantees a fixed rate of interest for a specified period of time. Premiums allocated to a fixed fund option are administered and invested with the insurer's general account.
fixed indexed annuity	See equity indexed annuity.
fixed period option	(1) A life insurance policy settlement option under which the insurance company agrees to pay a policy's proceeds plus interest in equal installments to the beneficiary for a specified period of time. (2) An annuity contract payout option under which the insurer makes annuity payments for a specified period of time regardless of whether the annuitant is living.
fixed premium universal life insurance policy	A universal life insurance policy that requires a series of scheduled premium payments of a specified amount for a specified length of time (typically 8 to 10 years) or until the insured's death, whichever comes first. Contrast with flexible premium universal life insurance policy.
fixed-amount budget	See static budget.
fixed-income investment	An investment that provides a predictable stream of income, such as a bond or a mortgage.
flat extra premium method	A method for adjusting individual life insurance premium rates to compensate for extra mortality in which the insurer adds to the standard premium rate a specified extra dollar amount for every $1,000 of life insurance. The flat extra premium method is typically used when the proposed insured's extra risk is expected to remain constant or decrease with age. See also temporary flat extra premium and permanent flat extra premium. Contrast with table rating method.
flexible budget	A type of budget that provides alternative sets of budget estimates to use under different circumstances that may arise during an accounting period. Also known as flexible-amount budget, dynamic budget, or variable budget. Contrast with static budget.
flexible premium deferred annuity (FPDA)	A type of annuity contract that will begin making periodic income payments more than one year after the contract's issue and is purchased with a series of premium payments that may be irregular in timing and amount.
flexible premium universal life insurance policy	A universal life insurance policy that allows the policyowner to alter the amount and frequency of premium payments, within specified limits. Contrast with fixed premium universal life insurance policy.
flexible premium variable life insurance	See variable universal life insurance.
flexible premiums	(1) For life insurance products, a form of premium payment in which a customer can make payments to the company at various times to increase the savings element in a contract that was established with a single initial premium; such premiums are used with universal life insurance. (2) For annuity contracts, when the contract owner is allowed to alter the amount and frequency of premium payments, within specified limits.
flexible-amount budget	See flexible budget.
floor provision	For fixed indexed annuities, a provision which specifies that the contract's values are not reduced if the linked index decreases in value during a measurement period.
FMLA	See Family and Medical Leave Act.
foreclosure	A legal proceeding by which a lender can take possession of and sell a mortgaged property to recover the unpaid loan balance if the borrower fails to make timely contractual principal and interest payments on the loan.
foreign corporation	From the point of view of a given state in the United States, a corporation that was incorporated under the laws of another state. Contrast with domestic corporation. In most other countries, a corporation incorporated under the laws of another country. Contrast with alien corporation.
foreign exchange market	A market that converts currencies used by buyers into currencies acceptable to the sellers.
formal contract	A contract that is enforceable because the parties met certain formalities concerning the form of the agreement. Sometimes referred to as a contract under seal. Contrast with informal contract.
FPDA	See flexible premium deferred annuity.
fraternal benefit society	A nonprofit organization that is operated solely for the benefit of its members and that provides social, as well as insurance, benefits to its members. Contrast with stock insurance company, mutual insurance company.
fraud	The intentional use of false information to mislead another party into parting with something of value or giving up a legal right.
fraudulent misrepresentation	In the formation of a contract, a misrepresentation that was made with the intent to induce another party to enter into a contract and that did induce the innocent party to enter into the contract.
free withdrawal provision	A deferred annuity contract provision that gives the contract owner the right to withdraw a specified portion of the accumulated value without paying a surrender charge or back-end load.
free-examination provision	See free-look provision.
free-look provision	An insurance or annuity policy provision that gives the policyowner a stated period of time—usually at least 10 days—after the policy is delivered in which to examine the policy. Sometimes referred to as a free-examination provision or a cooling-off provision.
front load	See front-end load.
front-end load	A commission or a sales charge applied at the time of purchase. (1) For annuities, a fee insurers charge—at the time a contract owner purchases or makes additional contributions to an annuity—to help cover the insurer's expenses of selling the annuity. (2) For mutual funds, a charge assessed for the purchase of shares in specified mutual fund accounts. Also called front-end sales load or front load. Contrast with back-end load.
front-end sales load	See front-end load.
fronting	An arrangement in which one insurer acts as a primary insurer and issues policies; but then immediately transfers most of the risk to another insurance or reinsurance company. Often the primary insurer is licensed to sell insurance in a particular jurisdiction but the other company is not.
FSMA	See Gramm-Leach-Bliley Act.
FSOC	See Financial Stability Oversight Council.
FTC	See Federal Trade Commission.
fulfillment kit	In the direct response marketing of insurance products, a package of materials designed to address or fulfill a customer's request for more information or to enter into an insurance contract.
full costing	A method for estimating product-related expenses in which both direct and indirect expenses are counted. Also known as absorption costing. Contrast with marginal costing.
full-service broker	Any person or entity engaged in the business of buying or selling investments for the account of another and who also offers investment advice and executes trades.
fully insured plan	A group insurance plan under which the group policyholder makes periodic premium payments to the insurance company and the insurance company bears the responsibility for all claim payments. Contrast with fully self-insured plan.
fully self-insured plan	A group insurance plan under which the group policyholder—usually an employer—takes complete responsibility for all claim payments and related expenses. Contrast with fully insured plan.
fund operating expense charge	For variable (unit-linked) life insurance and annuity products, an annual charge assessed by a fund manager to cover the advisory and administrative services provided by the manager.
fund option	See subaccount.
funding agency	The financial institution in which a group retirement plan's assets are held.
funding instrument	See funding vehicle.
funding vehicle	The means chosen for investing a retirement plan's assets as they are accumulated. Also known as a funding instrument or investment vehicle.
funds withheld	In reinsurance, amounts of money that the direct writer would otherwise pay to the reinsurer, but by agreement, the direct writer continues to hold as security for the reinsurance transaction.
funds withheld coinsurance	A type of reinsurance under which the direct writer and reinsurer proportionately share responsibility for almost all aspects of a reinsured policy, but the direct writer retains the gross reinsurance premium and the reinsurer retains the initial coinsurance allowance.
future purchase disability option benefit	A disability income benefit that grants the insured the right to increase the benefit amount in accordance with increases in the insured's earnings.
future value (FV)	The amount that an original sum is expected to be worth at a specified future date, given a specified interest rate. Contrast with present value.
future value interest factor (FVIF)	The future value of $1.00 at a given rate of interest for a stated number of periods. A future value interest factors table shows the future value of $1.00 for various interest rates and a number of compounding periods. Contrast with present value interest factor.
future value interest factor for an annuity (FVIFA)	The compound value interest factor that represents the future value of a $1.00 annuity at a given rate of interest for a stated number of periods.
future value of an annuity	The amount that a series of equal payments earning compound interest will be worth at a given future date.
futures contract	A limited-time agreement that gives the owner of the agreement the right to buy or sell a specified investment in the future for a price that is set through trading on an organized exchange.
FV	See future value.
FVIF	See future value interest factor.
FVIFA	See future value interest factor for an annuity.

G20	Commonly used name for the Group of Twenty Finance Ministers and Central Bank Governors, a forum for cooperation and consultation among representatives of key countries, the European Union, and a few non-governing institutions on matters pertaining to the international financial system.
GAAP	See generally accepted accounting principles.
GDP	See gross domestic product.
gender-based mortality table	See sex-distinct mortality table.
general account	A portfolio of assets that an insurer uses for the payment of contractual obligations to owners of non-investment-linked insurance products. General account assets are subject to the claims of a company's general creditors in the event of a company insolvency. Contrast with separate account.
general agent	An independent business person who is under contract to an insurer to represent the company in insurance sales and who establishes and finances an insurance field office known as a general agency.
general and administrative expenses	The expenses that result from undertaking normal business activities to generate sales of products and to support products; include expenses for contractual benefits and operating expenses.
general insurance company	See property/casualty insurance company.
general management risk	For an insurer, the risk of losses resulting from the insurer's ineffective general business practices or from the need to pay a special assessment to cover another insurer's unsound business practices. One of four officially recognized C risks. Also known as C4 risk.
Generally Accepted Accounting Principles (GAAP)	A set of financial accounting standards that all publicly traded companies in the United States and all companies in Canada follow when preparing their financial statements.
GI benefit	See guaranteed insurability benefit.
GIC	See guaranteed investment contract.
GIO	Guaranteed insurability option. See guaranteed insurability benefit.
GLB Act	See Gramm-Leach-Bliley Act.
GLWB	See guaranteed lifetime withdrawal benefit.
GMAB	See guaranteed minimum accumulation benefit.
GMDB	See guaranteed minimum death benefit.
GMIB	See guaranteed minimum income benefit.
GMWB	See guaranteed minimum withdrawal benefit.
going-concern concept	An accounting principle that requires a company's accounting records to reflect the assumption that the company will continue to operate indefinitely.
good-order check	A review performed by an insurer's sales producer or new business processing function to determine that an insurance or annuity application submission is complete and accurate.
government bond	A bond issued by a national, state, provincial, or city government.
GPAF	See guaranteed payout annuity floor.
grace period	(1) For insurance, a length of time (often 31 days) following each premium due date during which the contract remains in effect regardless of whether the premium is paid. If the premium is paid during the grace period, the premium is considered to have been paid on time. (2) For purchases on credit, a period of time between the date of a purchase and the date the lender begins to charge interest during which no interest accrues.
grace period provision	An insurance policy provision that specifies a length of time following each renewal premium due date within which the premium may be paid without loss of coverage.
graded vesting schedule	For qualified retirement plans in the United States, a minimum vesting schedule that provides a participant with a nonforfeitable right to employer-funded benefits or account values according to a schedule of gradual increases. Contrast with cliff vesting schedule.
graded-premium whole life insurance policy	A whole life insurance policy that calls for three or more levels of annual premium payment amounts, increasing at specified points in time—such as every three years—until reaching the amount to be paid as a level premium for the remainder of the life of the policy.
Gramm-Leach-Bliley (GLB) Act	A U.S. federal law enacted in 1999 that removed many of the regulatory barriers between institutions in the various segments of the financial services industry. Also known as the Financial Services Modernization Act (FSMA).
gross domestic product (GDP)	The total output of goods and services produced by labor and property located within a country, valued at adjusted market prices.
gross investment income	The amount of income that represents the total amount of income an insurer actually earned during the reporting year, before deducting investment expenses.
gross premium	The amount of money an insurer charges a policyowner for an insurance policy. Contrast with net premium.
gross reserve valuation method	A method of computing insurance policy reserves that makes provision for the insurer's product-related expenses. Contrast with net reserve valuation method.
group annuity	An annuity purchased by an employer or plan sponsor to provide periodic income payments at retirement to members of a specified group.
group creditor life insurance	Group life insurance issued to a creditor, such as a bank, to insure the lives of the creditor's current and future debtors.
group deferred annuity contract	A type of retirement plan funding vehicle that provides plan participants with annuities upon retirement. The insurer usually issues a master contract to plan trustees for the benefit of plan participants. Plan participants hold individual certificates as evidence of their promised annuity benefits. Each year, the sponsor uses the contributions made on behalf of each plan participant to purchase a single-premium deferred annuity.
group insurance	A method of providing life or health insurance coverage for a group of people under one insurance contract, called the master group insurance contract. Contrast with individual insurance.
group insurance policy	See master group insurance contract.
group insured	An individual covered by a master group insurance contract. Also called a covered person, certificate holder, or group life insured.
group life insured	See group insured.
group master contract	See master group insurance contract.
Group of Twenty Finance Ministers and Central Bank Governors	See G20.
group plan	See master group insurance contract.
group policyholder	The employer or other party that purchases group life insurance.
group prospect	A group that has applied for, but has not yet been approved for, group coverage from an insurance company. Also called the proposed group.
group Registered Retirement Savings Plan (RRSP)	In Canada, a retirement savings plan in which employer and employee contributions are treated as if they were made by the employee, who can exclude all contributions from his current taxable income.
group representative	A salaried insurance company employee specifically trained in the techniques of marketing and servicing group products.
group RRSP	See group Registered Retirement Savings Plan.
growth and income mutual fund	A mutual fund that has the objective of long-term capital gains and some current income.
growth mutual fund	A mutual fund that focuses on achieving long-term capital appreciation or growth in value, but does not emphasize current income. A growth fund typically would hold common stocks.
guaranteed income contract	See guaranteed investment contract.
guaranteed insurability (GI) benefit	A supplemental life insurance policy benefit that gives the policyowner the right to purchase additional insurance of the same type as the basic life insurance policy—for an additional premium amount—on specified option dates (typically every three years) during the life of the policy without supplying evidence of the insured's insurability. Also known as a guaranteed insurability option.
guaranteed insurability option (GIO)	See guaranteed insurability benefit.
guaranteed interest contract	See guaranteed investment contract.
guaranteed interest-crediting rate	The minimum interest rate an insurer must pay on a fixed deferred annuity contract's accumulation value. See also excess interest-crediting rate, current interest-crediting rate.
guaranteed investment contract (GIC)	A type of retirement plan funding vehicle in which the plan sponsor makes a single deposit for the insurer to hold for a specified period of time, such as five years. GICs generally have a specified maturity date and guarantee the repayment at the maturity date of the amounts deposited under the contract, plus the amount of credited interest, less withdrawals. Also known as a guaranteed interest contract or a guaranteed income contract.
guaranteed level premium term insurance	See level premium term life insurance.
guaranteed lifetime withdrawal benefit (GLWB)	A type of living benefit rider for variable annuities (VAs) that guarantees minimum withdrawals to a VA owner for life. The withdrawal amount is usually specified as a percentage of the contract's living benefit value or accumulation value, whichever is greater.
guaranteed maximum mortality rate	For universal life (UL) products, a monetary amount specified in the contract which sets an upper limit on the mortality charge. The insurer guarantees not to charge a rate higher than the guaranteed maximum mortality rate. See also current mortality rate.
guaranteed minimum accumulation benefit (GMAB)	A variable annuity contract feature that guarantees the value of the annuity will not fall below the principal investment amount (the accumulation), regardless of investment performance, as long as the contract remains in force for a specified period of time without any withdrawals.
guaranteed minimum death benefit (GMDB)	A variable annuity contract feature which guarantees that, if the annuitant dies before periodic income payments begin, the beneficiary will receive at least a stated minimum amount, regardless of the contract's accumulated value at that time.
guaranteed minimum income benefit (GMIB)	A variable annuity contract feature that guarantees a minimum periodic income payment regardless of the annuity's investment performance if the contract remains in force for a specified period of time—typically 7 to 10 years.
guaranteed minimum interest-crediting rate	For a fixed deferred annuity, the minimum rate that an insurer must credit to the contract's accumulated value. See also accumulated value.
guaranteed minimum withdrawal benefit (GMWB)	A variable annuity contract feature which guarantees that up to a certain percentage of the amount paid into the contract will be available for withdrawals annually during the accumulation period, regardless of investment performance.
guaranteed payout annuity floor (GPAF)	For variable annuities, a living benefit under variable payout options which guarantees that the amount of each annuity payment after the first payment will never be less than a certain percentage of the first payment.
guaranteed renewable policy	An individual health insurance policy that gives the policyowner the right to renew the policy for as long as the premium payments are made when due. Medical expense and disability income policies may specify an upper age limit, such as 65, beyond which the policy does not have to be renewed by the insurer. Long-term care insurance typically must be renewed for the remainder of the insured's life. The insurer cannot increase the premium rate for an individual guaranteed renewable policy but may increase the premium rate for all policies in a particular class of policies. See also cancellable policy, conditionally renewable policy, optionally renewable policy, noncancellable policy.
guaranteed-issue basis	A way of offering insurance products in which no individual underwriting takes place; every eligible proposed insured who applies and meets specified conditions is automatically issued a policy.
guaranty association	In the United States, an organization that operates under the supervision of the state insurance commissioner to protect policyowners, insureds, beneficiaries, annuitants, payees, and assignees against losses that might result from the impairment or insolvency of an insurer that does business in the state.

HDHP	See high deductible health plan.
health insurance	Insurance that provides protection against the risk of financial loss resulting from illness, injury, or disability.
Health Insurance Portability and Accountability Act (HIPAA)	In the United States, federal legislation that sets forth requirements that employer-sponsored group insurance plans, insurers, and managed care organizations must meet in providing individual and group health insurance.
health maintenance organization (HMO)	In the United States, a health care financing and delivery system that provides comprehensive health care services to plan members, often referred to as subscribers, in a particular geographic area.
heaped commission schedule	For life insurance sales, a commission schedule that features a relatively high first-year commission and lower renewal commissions.
hedging	A risk management strategy that involves balancing one risk with a complementary risk that will ideally offset the original risk.
HELOC	See home equity line of credit.
high deductible health plan (HDHP)	A medical expense insurance plan that has a high deductible (usually at least $1,000 or more) and typically costs less than traditional health insurance. Also known as a catastrophic health insurance plan.
high water mark method	For equity-indexed annuities, an index-crediting mechanism that involves comparing, at specified points during the contract term—usually anniversary dates, the value of the index at the beginning of the contract term to the highest value of the index.
high-yield junk bond	A bond issued by corporations that are prone to default risk but pay relatively high interest rates.
HIPAA	See Health Insurance Portability and Accountability Act.
HMO	See health maintenance organization.
holding company	A company that owns a controlling interest in one or more other companies. See also subsidiary.
home equity installment loan	A second mortgage installment loan in which the borrower receives a loan in an amount equal to a specified percentage of the borrower's equity and then repays this loan with fixed or variable periodic payments of principal and interest over a fixed period.
home equity line of credit (HELOC)	A second mortgage noninstallment loan giving the borrower a line of credit in an amount equal to a specified percentage of the borrower's equity.
home equity loan	A second mortgage installment loan in which the borrower receives a loan in an amount equal to a specified percentage of the borrower's equity and then repays this loan with fixed or variable periodic payments of principal and interest over a fixed period.
home office	An insurance company's headquarters, where most of the functional areas—such as underwriting, claim administration, customer service, actuarial, marketing, accounting, legal/compliance, and human resources—are located. Contrast with field office.
home service agent	A commissioned life insurance sales agent who sells specified products, typically low face amount cash value life insurance with low monthly premiums. The agent provides policyowner service in an assigned geographic territory. Also known as a debit agent.
home service distribution system	A method of selling and servicing insurance policies through commissioned producers, known as home service agents, who sell a range of products and provide specified policyowner services, including the collection of renewal premiums, within a specified geographic area.
home service life insurance	Life insurance that is paid for by weekly or monthly premiums which are often collected by an agent of the insurer. Also known as industrial life insurance or debit life insurance.
home-office-to-home-office arrangement	A distribution agreement under which an insurance company that does not offer a particular product or product line enters into an agreement with another insurance company to distribute specific products or product lines issued by that company.
homeowners insurance	A type of personal property insurance that provides property and liability insurance to protect an insured from financial losses resulting from damage to the insured's home and/or its contents or resulting from being held liable for the losses of others suffered while on the insured's property.
hospice benefit	A health insurance policy benefit that provides for the payment of medical or nonmedical treatments for terminally ill insureds either at the insured's home or at a designated medical facility, known as a hospice.
hospital expenses	Medical expenses that include charges for specific inpatient and outpatient hospital services, such as room and board, medications, laboratory services, and other fees associated with a hospital stay.
HR 10 plan	See Keogh plan.
hurdle rate	The minimum percentage rate of return on capital that an investor must earn to cover its cost of capital. Also called required rate of return.
hybrid annuity	An annuity product that has a mixture of fixed and variable annuity design elements. Equity indexed annuities and market value adjusted annuities are examples of hybrid annuities.
hyperinflation	An out-of-control inflationary spiral. See also inflation.

IADLs	See instrumental activities of daily living.
IAIS	See International Association of Insurance Supervisors.
IASB	See International Accounting Standards Board.
IFRS	See International Financial Reporting Standards.
illustration	In life insurance sales, a presentation or depiction used during the sales process that includes nonguaranteed values of a life insurance policy. An illustration used in the sale of a life insurance policy may be either a basic illustration or a supplemental illustration.
illustration actuary	In the United States, an insurance company employee or a consultant hired by an insurer who meets requirements specified in the Life Insurance Illustrations Model Regulation and who is responsible for ensuring that the insurer's life insurance sales illustrations meet the requirements of the Model Regulation and actuarial standard practices.
illustration of net cost	In a proposal for group insurance, an explanation of rates that typically covers two or more years and shows possible future ratings and premiums, provided the group's claim experience stays within the parameters assumed for the insurance product.
immediate annuity	An annuity contract under which payment of the periodic income benefit begins one period (typically less than one year) after the contract is purchased. Contrast with deferred annuity.
immediate participation guarantee (IPG) contract	A type of retirement plan funding vehicle in which plan assets are held in an investment account in the name of the plan sponsor and deposited in the general account of the insurer. Under an IPG contract, the plan assets fully experience the actual monetary gains or losses from investing and paying benefits from the plan's assets.
IMO	See independent marketing organization.
impaired risk class	See substandard risk class.
impairment	In the underwriting of life insurance, any aspect of a proposed insured's health, occupation, activities, or lifestyle that could increase his or her expected mortality.
impairment guide	In the underwriting of life insurance, a list of common impairments and the probable underwriting decision for proposed insureds who have each type of impairment. Insurers provide to sales agents a field underwriting manual that contains this list.
impairment rider	A policy amendment that excludes or limits coverage for a health condition or activity specified in the rider. Also known as an exclusion rider or impairment waiver.
impairment waiver	See impairment rider.
income date	See maturity date.
income protection insurance	A type of disability income coverage that provides benefits based on the extent of the insured's actual loss of earnings from disability rather than on the insured's inability to perform work-related duties.
income replacement table	For purposes of disability income insurance underwriting, a table that states the maximum dollar amount of monthly income benefit an insurer will issue based on a proposed insured's net earned income.
income statement	A financial statement that reports an insurer's revenues and expenses during a specified accounting period and that indicates whether the insurer experienced net income (profit) or a net loss during the accounting period. Also known as a statement of operations. Contrast with balance sheet.
incontestability provision	A life insurance and annuity policy provision that describes the time limit within which the insurer can dispute a policy's validity based on material misrepresentations made in the application. See also contestable period.
increasing term life insurance	Term life insurance coverage that provides a death benefit that starts at one amount and increases by some specified amount or percentage at stated intervals over the policy term. Contrast with decreasing term life insurance.
incremental cost	See marginal cost.
indemnification	Compensation or reimbursement of another's loss.
indemnity benefits	Insurance policy benefits that are based on the actual amount of the insured's financial loss, up to a policy limit. Homeowners insurance and some types of health insurance provide indemnity benefits. Also known as reimbursement benefits.
indemnity reinsurance	The type of reinsurance most commonly used to transfer risk in which a direct writer transfers a stated portion of its accepted risk to a reinsurer, and the reinsurer is obligated to reimburse the direct writer only after the direct writer pays benefits under reinsured policies. Indemnity reinsurance includes traditional indemnity reinsurance and finite reinsurance; and in practice, indemnity reinsurance can refer to both traditional indemnity reinsurance and finite reinsurance; however, it most often refers to traditional indemnity reinsurance. Contrast with assumption reinsurance.
independent agent	An independent contractor who works as a sales agent for an insurance company and who may be either an affiliated or nonaffiliated sales agent of the insurer. See also career agent and multiple-line agent.
independent audit	See external audit.
independent contractor	A person who contracts to do a specific task according to his own methods and who generally is not subject to the employer's control except as to the end product or final result of the work.
independent financial advisor	In the United States, an individual registered with the Securities and Exchange Commission to give advice about investment securities. Also known as a registered investment advisor.
independent marketing organization (IMO)	A non-company affiliated marketing organization that contracts with an insurance company to distribute one or more of the company's products or product lines.
indeterminate premium structure	A variation in premium rate structures for individual life insurance products that allows the company to periodically reset premium rates on in-force whole life products while guaranteeing customers that premiums will not exceed a maximum specified level.
index	A statistical measurement system that tracks the performance of a group of similar investments.
indexed annuity	See equity indexed annuity.
indexed annuity crediting method	The method by which an insurer credits an equity indexed annuity with the monies generated from the portion of its investment portfolio that is based upon an index of stocks.
indirect costs	In accounting, costs that cannot be physically traced to one specific product, line of business, department, or other cost object. Also known as overhead expenses, common costs, or indirect expenses. Contrast with direct costs.
indirect expenses	See indirect costs.
individual annuity	An annuity purchased and owned directly by a person or purchased by a legal entity, such as a trust or corporation, on behalf of a person.
individual cession administration	A method of reinsurance record administration under which the reinsurer prepares its own cession records based on detailed information about individual cessions provided by the direct writer.
individual deductible	See deductible.
individual insurance	An insurance policy that is issued to a named person. Contrast with group insurance.
individual policy pension trust	A type of allocated retirement plan funding vehicle typically used for a small group pension plan under the terms of which plan trustees purchase individual life insurance policies or individual annuity contracts for each participant in the plan annually. Note that this arrangement uses individual, not group, annuities. Also known as a 412(i) plan.
individual retirement account	An individual retirement arrangement that takes the form of a trust or custodial account set up in the United States for the exclusive benefit of a taxpayer and his beneficiaries; the trustee must be a bank, brokerage firm, mutual fund company, or similar financial institution. Sometimes referred to as an IRA. See also individual retirement arrangement, individual retirement annuity, traditional IRA, and Roth IRA.
individual retirement annuity	In the United States, an individual retirement arrangement that takes the form of an individual annuity issued by an insurance company. Sometimes referred to as an IRA. See also individual retirement arrangement, individual retirement account, traditional IRA, and Roth IRA.
individual retirement arrangement (IRA)	In the United States, a retirement savings plan that allows an individual with taxable compensation to deposit a stated amount of that income into a savings arrangement that meets requirements specified in the federal tax laws and, thus, receives favorable federal tax treatment. See also individual retirement account, individual retirement annuity, traditional IRA, and Roth IRA.
individual stop-loss coverage	Insurance purchased by employers that self-insure group health insurance plans so that they can place a maximum dollar limit on their liability for paying claims. Under individual stop-loss insurance, the insurer reimburses the employer for all claims paid for any individual that exceed a stated amount in a stated period of time. Also referred to as specific stop-loss coverage.
industrial life insurance	See home service life insurance.
inflation	A prolonged rise in the average level of prices in an economy.
inflation protection provision	A provision that can be added to a long-term care policy for an additional premium amount that adjusts policy benefits to account for inflation. Such provisions either automatically increase the daily or lifetime benefits by a specified percentage or allow the insured to opt for a higher daily benefit amount at specified intervals during the lifetime of the policy without having to show evidence of insurability. See also long-term care (LTC) insurance.
inflation risk	The risk that the average prices of goods and services will increase during an investment period, thus decreasing the purchasing power of the returns on an investment.
informal contract	A contract that is enforceable because the parties to the contract met requirements concerning the substance of the agreement rather than requirements concerning the form of the agreement. Contrast with formal contract.
in-house brokerage agency arrangement	An arrangement to distribute nonproprietary insurance products in which an insurer establishes its own brokerage agency—rather than using an outside agency—to solicit distribution agreements with other insurers to sell those insurers' products.
initial investment	For an investment project, the amount of cash the investor must use to undertake the project. For a new annuity product, the amount of capital and surplus that an insurer must invest to establish the new product.
initial premium	The first premium paid for an insurance policy. Contrast with renewal premium.
initial public offering (IPO)	The first time a corporation's stock is offered for sale to the public.
inland marine insurance	A type of property insurance that covers property in transit over land and instruments of communication or transportation, such as tunnels and bridges.
in-network provider	A term used in the United States to describe medical care providers in a managed care plan who have a contract with the insurer to accept rates discounted from the "usual and customary" charges the insurer pays to out-of-network providers.
inside information	See material nonpublic information.
insider trading	Buying or selling a company's securities (stocks or bonds) based upon inside information. See also inside information.
insolvency	(1) The inability of a company to pay its financial obligations as they come due. (2) For an insurer, the inability to maintain capital and surplus above the minimum standard of capital and surplus required by law.
insolvency provision	A reinsurance agreement provision that describes the rights and responsibilities of the direct writer and the reinsurer in the event that either party becomes insolvent.
inspection report	During the underwriting of individual life insurance, a type of investigative consumer report that a consumer reporting agency prepares about a proposed insured's lifestyle, occupation, or economic situation. The proposed insured must be notified that such a report may be conducted. Typically, the report notification is part of the insurance application.
installment credit	Any loan or credit arrangement that requires the borrower to make equal periodic repayments on the loan amount over a fixed period according to a prearranged payment schedule. Also known as a personal loan.
instant-issue underwriting	See real-time underwriting
institutional customer	See organizational customer.
instrumental activities of daily living (IADLs)	Activities that are necessary for an individual to live independently but that aren't essential to daily functioning. IADLs include managing finances, cooking and doing laundry, shopping for food and clothing, transporting oneself in a car or on public transportation, using the telephone, and taking medications. Long-term care insurance may provide coverage for these types of services for someone who is eligible for long-term care benefits. Contrast with activities of daily living (ADLs).
insurability premium receipt	A conditional premium receipt that provides temporary insurance coverage on condition that the insurer finds that the proposed insured was insurable at least as a standard risk on a certain date specified in the premium receipt. Contrast with approval premium receipt. See also conditional premium receipt and binding premium receipt.
insurable interest	The interest an insurance policyowner has in the risk that is insured. A policyowner has an insurable interest if he is likely to suffer a genuine loss or detriment should the event insured against occur. Without the presence of insurable interest, an insurance contract would not have been formed for a lawful purpose and, thus, would be void.
insurance	A mechanism for transferring some or all of the risk of a financial loss caused by events such as fire, accident, illness, or death from an individual or entity to an insurance company.
insurance agent	Any individual appointed by an insurer to solicit applications for insurance or negotiate insurance or annuity contracts on the insurer's behalf. See also career agent and independent agent.
insurance broker	See broker.
insurance brokerage	See insurance broker-dealer.
insurance broker-dealer	A registered subsidiary of an insurance company that primarily or exclusively sells that insurer's variable insurance products and also provides specialized financial planning and investment services to customers. Also known as an insurance brokerage or insurance-owned broker-dealer.
insurance commissioner	In the United States, the individual who is responsible for directing the operations of a particular state's insurance department. Also known as the superintendent of insurance or director of insurance.
insurance company	See insurer.
insurance contract	See insurance policy.
insurance fraud	Any fraud that involves an insurance company, whether committed by consumers, insurance company employees, producers, health care providers, or anyone else connected with an insurance transaction. See also fraud.
insurance leverage ratio	A financial ratio used to measure an insurer's debt burden in relationship to the resources it has available to support the debt burden. The ratio compares an insurer's contractual reserves with its capital and/or surplus.
insurance policy	A written document that contains the terms of the agreement between the insurer and the owner of the policy. Also known as insurance contract or policy.
insurance producer	See producer.
insurance rating agency	See rating agency.
Insurance Regulatory Information System (IRIS)	In the United States, a system established by the National Association of Insurance Commissioners (NAIC) to monitor the financial condition of insurers with a view toward preventing insolvencies. See also analytical phase of IRIS and statistical phase of IRIS.
insurance superintendent	See insurance commissioner.
insurance-owned broker-dealer	See insurance broker-dealer.
insurance-to-value requirement	In property insurance, a policy provision that requires the insured to insure a certain percentage of the property's value—typically at least 80 percent—in order for any loss to be fully covered.
insured	The person whose life, health, or property is insured under an insurance policy.
insurer	A company that enters into insurance contracts to accept risk and makes a promise to pay a policy benefit to a contract owner if a covered loss occurs. Also known as an insurance company.
insurer-administered group plan	A group insurance plan for which the insurer is responsible for handling the administrative and recordkeeping aspects of the plan. Contrast with self-administered group plan.
intangible asset	An asset that represents ownership of a legal right or another nonphysical resource. Also known as intangible property. Contrast with tangible asset.
intangible property	See intangible asset.
interest	Money paid for the use of money. See also compound interest and simple interest.
interest first rule	See earnings first rule.
interest margin	See interest spread.
interest option	A life insurance policy settlement option under which the policy proceeds are left on deposit with the insurer and the interest earned on those proceeds is paid out annually, semiannually, quarterly, or monthly to the beneficiary or other payee.
interest rate	The percentage by which an amount of money is multiplied to derive the amount that is paid for the use of that money; often expressed in decimal form.
interest rate assumptions	For an insurance product, the assumed rates of investment earnings on the product in a specified period after investment expenses have been covered.
interest spread	For insurance products, the difference between the rate of return an insurer earns on its investments and the interest rate credited to products on behalf of customers. Represents the element of profit that insurers hope to earn from their investment operations. Also known as an interest margin.
interest-crediting rate	The interest rate an insurer applies to a fixed deferred annuity contract's values to determine the accumulation value.
interest-indexed universal life policy	A universal life insurance policy that provides for interest credits to be linked to an external standard, such as the Standard & Poor's 500 index. See also universal life insurance policy.
interest-rate cap	(1) A loan provision that sets a maximum limit on the interest rate that will be charged on an adjustable rate mortgage, even if the benchmark interest rate exceeds that cap in the future. (2) For fixed indexed annuities (FIAs), the upper limit on the amount of a reference index's gain in value that is credited to the annuity contract.
interest-rate risk	(1) The uncertainty arising from fluctuations in market interest rates. (2) Within the system of contingency risks (C risks), the risk that market interest rates might shift, causing the insurer's assets to lose value or its liabilities to gain value; this contingency risk is also known as C-3 risk.
intermediary	In the financial services industry, a person or entity who sells and services financial products, such as insurance products or investment products, on behalf of a financial services company. See also broker, broker-dealer, investment advisor, and producer.
internal audit	An examination of a company's records, policies, and procedures that is conducted by the company's own employees to ensure that service standards are met, data recorded in the company's files is accurate and complete, and established procedures are being followed. Contrast with external audit.
internal capital	See economic capital.
internal rate of return (IRR)	For a life insurance or an annuity product, the interest rate at which the product's net cash flow must be discounted, using present value techniques, in order to exactly repay the insurer's initial investment in the product.
internal replacement	A replacement in which the new life insurance policy or annuity contract is purchased from the same insurer that issued the original policy or contract. Contrast with external replacement.
Internal Revenue Service (IRS)	An agency of the U.S. Department of the Treasury, which is responsible for collecting federal income taxes from individuals and businesses.
International Accounting Standards Board (IASB)	A private organization with the mission of developing and publishing, in the public interest, a single set of global accounting standards.
International Association of Insurance Supervisors (IAIS)	An organization comprised of the vast majority of insurance regulators and supervisors from around the world that was created to develop international principles and standards for insurance supervision and improve supervisory systems for the insurance industry.
International Financial Reporting Standards (IFRS)	A single set of global accounting standards developed by the International Accounting Standards Board (IASB) to promote consistency, comparability, and more complete disclosure of information included in corporate financial statements.
interpleader	In the United States, a procedure by which an insurer pays a policy's proceeds to a court, advises the court that the insurer cannot determine who should receive the proceeds, and asks the court to determine the proper recipient or recipients.
invested asset credit risk	See default risk.
investigative consumer report	A report prepared by a consumer reporting agency that contains information obtained through personal interviews with an individual's neighbors, friends, associates, or others who may have information about the individual. See also inspection report.
investment	Any use of resources with the aim of earning a profit or a positive return.
investment activity report	An asset-liability management (ALM) report that specifies the details of all investment portfolio transactions, including all asset acquisitions and all dispositions of assets from the portfolio through sales, prepayments (redemptions), or repayment at maturity.
investment advisor	A company or individual who receives compensation in exchange for providing advice to investors about the value of securities or the advisability of buying and selling securities.
investment company	An entity in the United States that issues securities and engages primarily in investing and trading securities.
investment management fee	A fee charged the owner of a variable annuity which covers the costs of managing and operating the investment funds underlying the variable subaccounts. Also known as an asset management fee.
investment vehicle	See funding vehicle.
investment yield	A financial ratio that determines the rate of return, or yield, on an insurer's investment portfolio; calculated by dividing the insurer's investment portfolio income by the company's average invested assets for the period.
investment-grade bond	A bond that is rated in the highest categories by a bond rating agency—at least Baa (Moody's) or BBB (Standard & Poor's)—and that is thought to have the lowest risk of default. Insurers typically invest in investment-grade bonds.
invitation to contract	A marketing communication that includes all the information necessary for a customer to make an informed purchase decision, including a complete product description, pricing details, and a method of responding to the communication. Insurers use an invitation to contract in the direct response method of insurance distribution. Contrast with invitation to inquire.
invitation to inquire	A marketing communication designed to generate interest in a product or service and provide prospective customers with a way to request and receive additional information. Insurers use an invitation to inquire in the direct response method of insurance distribution. Contrast with invitation to contract.
IPG contract	See immediate participation guarantee contract.
IPO	See initial public offering.
IRA	See individual retirement arrangement.
IRIS	See Insurance Regulatory Information System.
IRR	See internal rate of return.
irrevocable beneficiary	A life insurance policy beneficiary whose designation as beneficiary cannot be cancelled by the policyowner unless the beneficiary gives written consent. Contrast with revocable beneficiary.
IRS	See Internal Revenue Service.
IRS Form 1099R	In the United States, a tax form that insurers must provide to annuity contract owners by January 31 of each year for each annuity contract from which a disbursement was made the previous tax year.
issue instructions	Insurer guidelines showing the policy forms approved for use in each jurisdiction and the requirements various functional areas need to follow when selling or administering a new product.

jet unit underwriting	Within an insurance company, a work team authorized to approve certain types of individual insurance applications for immediate policy issue.
joint and survivor annuity	An annuity that provides periodic income payments to two or more annuitants. The periodic income payments are based on the life expectancies of the annuitants and continue until both or all of the annuitants have died. See also annuitant.
joint life insurance	See joint whole life insurance.
joint mortgage life insurance	A variation of mortgage life insurance that provides the same benefit as a mortgage life insurance policy except the joint policy insures the lives of two people.
joint venture	An arrangement between two otherwise independent businesses that agree to undertake a specific project together for a specified time period.
joint whole life insurance	A plan of whole life insurance that has the same features and benefits as individual whole life insurance, except that it insures two or more people under the same policy. The proceeds are typically paid when the first of two (or more) insureds covered by the policy dies. However, proceeds may be payable on the first death, the second death, or upon each death. Often referred to as first-to-die life insurance or joint life insurance.
jumbo limit	In automatic reinsurance, the maximum allowable monetary amount of total insurance—currently in force plus yet-to-be placed—with all companies on any one life that will qualify for automatic cession. Jumbo limits for automatic cessions control the reinsurer's exposure to risk on any one life. See also automatic reinsurance.
juvenile insurance policy	An insurance policy that is issued on the life of a child but is owned and paid for by an adult, usually the child's parent or legal guardian.

Keogh plan	In the United States, a qualified individual retirement arrangement (IRA) that allows self-employed persons or small businesses to deposit a portion of their income earned from self- employment into a tax-deferred savings plan. Also known as HR 10 plan. See also individual retirement arrangement (IRA).
key employee life insurance	See key person insurance.
key person	For insurance purposes, any person or employee whose continued participation in a business is vital to the success of the business and whose death or disability would cause the business to incur a significant financial loss.
key person disability coverage	See key person insurance.
key person insurance	Individual life insurance or disability insurance that a business purchases on the life of a key person with the benefits typically payable to the business. See also key person.
key person life insurance	See key person insurance.

labor union group	A group that consists of members of a labor union or all of any class or classes of union members other than the union officials, agents, or representatives.
lagging indicator	A statistical variable that tends to change after gross domestic product (GDP) changes. Contrast with coincident indicator, leading indicator. See also gross domestic product.
lapse	The termination of an insurance policy for nonpayment of premium.
lapse rate	The percentage of a group of policies in force at the beginning of a specified period, such as a year, that are terminated by the end of that period for reasons other than the death of the insured. Contrast with persistency rate.
last survivor life insurance	A variation of joint whole life insurance under which the policy benefit is paid only after both people insured by the policy have died. Also known as second-to-die life insurance or survivorship life insurance. See also joint whole life insurance.
last-in-first-out (LIFO) rule	See earnings first rule.
late enrollee	In group insurance, members of a group and their eligible dependents who are not enrolled when group coverage is first offered to the group but later decide to enroll in the plan.
late-remittance offer	See reinstatement.
leading indicator	A statistical variable that tends to change before gross domestic product (GDP) changes. Contrast with coincident indicator, lagging indicator. See also gross domestic product.
legal actions provision	A provision in individual health insurance policies that limits the time during which a claimant who disagrees with an insurer's claim decision has the right to sue the insurer to collect the amount the claimant believes is owed under the policy.
legal reserve	See contractual reserve.
lessee	The individual or organization that leases a building from the building's owner.
lessor	A building owner that leases a building to another individual or organization.
letter of intent (LOI)	A short document issued to confirm the essential terms of a reinsurance arrangement while the reinsurance treaty is being drafted. Also known as a reinsurance slip.
level face amount term life insurance	See level premium term life insurance.
level premium system	A life insurance pricing system that allows a policyowner to pay the same premium amount each year a policy is in force.
level premium term life insurance	Term life insurance that provides a policy benefit that remains the same over the term of the policy. Also known as level face amount term life insurance or guaranteed level premium term insurance.
leverage	See leverage effect.
leverage effect	A financial effect in which the presence of fixed costs—either operating costs or financing costs—automatically magnifies the potential risks and returns to the company's owners. Also known as leverage.
leverage ratios	Financial ratios used to compare the amount of an insurer's obligations with the insurer's ability to meet those obligations.
liabilities	A company's debts and future financial obligations. Contrast with assets.
liability insurance	Insurance that provides protection for the insured against financial responsibility for harming others or their property.
liability portfolio	In asset-liability management (ALM), the portfolio that represents the insurer's obligations to customers. Also known as a product portfolio. Contrast with asset portfolio.
license	See certificate of authority.
lien	A term used to describe a claim against property resulting from a debt or other obligation.
life and health insurance company	A company that issues and sells products that insure against financial losses that result from personal risks such as death, disability, illness, accident, and outliving one's savings.
life and health insurance guaranty association	In each state in the United States, an organization that protects policyowners, insureds, beneficiaries, annuitants, payees, and assignees against losses that might result from the impairment or insolvency of a life or health insurer that does business in the state. Insurers are required to participate in a state's guaranty association in order to be licensed in that state.
life annuity	An annuity that provides periodic income payments for at least the lifetime of the annuitant.
life annuity with period certain	A life annuity which guarantees that the insurer will make periodic income payments throughout the annuitant's life and guarantees that the payments will be made for at least a certain period, even if the annuitant dies before the end of that period.
life annuity with refund	A life annuity that provides periodic income payments throughout the lifetime of the annuitant and guarantees that at least the purchase price of the annuity will be paid out. Also known as a refund annuity.
life event-oriented marketing	In insurance sales, the practice of timing sales and promotional efforts around significant events in customers' lives, such as marriage or the birth of a child.
life income option	A life insurance policy settlement option under which the insurance company agrees to use the policy proceeds to provide a life annuity for the policy's payee. See also straight life annuity, life annuity with period certain, life annuity with refund, and joint and survivor annuity.
life insurance	Insurance that pays a benefit upon the death of a named person.
Life Insurance Buyer's Guide	In the United States, a standardized publication that explains to insurance customers in general language the basic types of life insurance, how to determine the amount of life insurance coverage they need, and how to compare the costs of similar types of policies. Many states have enacted legislation that requires insurers to provide prospective buyers of certain insurance and annuity products with a Life Insurance Buyer's Guide. Also known as a Buyer's Guide. Contrast with policy summary.
life insurance mortality table	A type of mortality table that shows the projected mortality rates and survival rates for a population of life insureds only. Contrast with annuity mortality table.
life only annuity	See straight life annuity.
life settlement	A financial transaction in which the owner of a life insurance policy, typically a senior adult with a diminished life expectancy but who is expected to live more than twenty-four months, sells the policy to a third party for more than its cash value but less than its face value. See also viatical settlement company.
life settlement company	See viatical settlement company.
life with refund annuity	See life annuity with refund.
Life-1 Report	A financial report that insurers operating in Canada must submit to the Office of the Superintendent of Financial Institutions (OSFI) and to the regulators of every province in which the insurer does business.
lifecycle mutual fund	A diversified portfolio of investments with a target year in its name whose asset allocations grow increasingly conservative as the target year approaches. Also known as a target retirement mutual fund.
lifestyle mutual fund	A diversified portfolio of financial investments designed to match the risk tolerance of an investor.
lifetime benefit period	A feature in long-term care (LTC) insurance policies that provides for payment of a daily benefit amount for the remainder of the insured person's life, provided the insured person is receiving custodial care.
lifetime maximum benefit	The maximum amount that an insurer will pay for all eligible expenses an insured incurs under a medical expense or long-term care insurance policy. When an insured reaches the lifetime maximum benefit amount, the policy will not pay any more benefits.
LIFO rule	Last-in-first-out rule. See earnings first rule.
limitation	Any insurance policy provision that restricts coverage and that is not an exclusion or a reduction.
limitations on asset concentrations	See diversification criteria.
limited-payment whole life policy	A whole life insurance policy for which premiums are payable only for a stated period of time or until the insured's death, whichever occurs first.
liquid assets	Cash or assets that can be converted to cash quickly for an approximation of true value.
liquidation	(1) In general, the process in which a corporation that is being dissolved pays its debts or makes arrangements to pay those debts. If any assets remain after the debts are paid, then those assets are distributed on a pro rata basis to the corporation's stockholders in the order of their priorities. (2) In the United States in an insurance receivership, a process by which a receiver either transfers all of an impaired insurer's business—including its reserve liabilities—and assets to other insurers or sells the insurer's assets and terminates the insurer's business. See also receivership. Contrast with rehabilitation.
liquidation period	See payout period.
liquidity	The ease with which an asset can be converted to cash for an approximation of its true value.
liquidity ratios	Financial ratios that measure a company's ability to meet its maturing short-term obligations.
liquidity risk	The risk of not having adequate liquidity to meet obligations as they come due.
living benefit	See accelerated death benefit.
loan coverage	See creditor insurance.
location-selling distribution system	A method for distributing insurance products that is designed to generate customer-initiated sales at an office or information kiosk in a store, shopping mall, or other non-insurance business establishment.
LOI	See letter of intent.
long-term assets	Assets that a company plans to hold indefinitely or for a long time—generally, more than a year—to generate income. Also known as noncurrent assets.
long-term care (LTC) insurance	Health insurance that provides benefits to eligible insureds who need care for an extended period either at home or in a qualified care facility. Benefits are typically provided for a range of formal and informal services, including medical care as well as personal care.
long-term care (LTC) insurance benefit	A supplemental life insurance policy or annuity contract benefit under which the insurer agrees to pay a monthly benefit to a contract owner if the insured requires constant care for a medical condition. See also accelerated death benefit.
long-term group disability income coverage	Group disability income coverage that provides a maximum benefit period of more than one year. Contrast with short-term group disability income coverage.
long-term individual disability income coverage	Individual disability income coverage that provides a maximum benefit period of five years or more. Contrast with short-term individual disability income coverage.
long-term liabilities	Liabilities that do not have to be paid in full during the current accounting period, usually one year. Also known as noncurrent liabilities.
loss	A monetary excess of expenses over revenues. Sometimes known as a net loss. See also expense and revenue. Contrast with profit.
loss ratio	A measure of the reasonableness of health insurance policy benefits, calculated as the ratio of total premiums received to total claims incurred for a group of policies. It measures the percentage of premiums that are paid out in policy benefits without considering administrative expenses, state premium taxes, reserves, and other costs involved in issuing and maintaining the policies.
LTC	See long-term care insurance.
LTC insurance	See long-term care insurance.
lump-sum distribution	For an annuity, the distribution of the accumulated value in a single payment.

M&E charge	See mortality and expense risk charge.
maintenance expenses	For an insurance company, any product-related costs, including renewal commissions and some agency expenses, incurred after an insurance contract is in force and that are necessary to keep a policy in force. Also known as renewal expenses or administrative expenses.
major medical expense coverage	Medical expense insurance coverage that provides substantial benefits after a deductible is satisfied. Major medical pays for practically all of an insured's covered medical expenses, including (1) basic hospital, surgical, and physicians' expenses, (2) additional medical services related to illness or injuries, and (3) preventive care. Lifetime limits on how much the major medical plan will pay are high, often $1 to $2 million, or may even be unlimited.
managed health care	A method of integrating the financing and delivery of health care services within a system that manages the access to health care services and the cost of those services. See also managed health care plan.
managed health care plan	A health insurance plan that either requires insureds to use an approved network of health care providers, or creates incentives for insureds to use such providers. Network health care providers enter into contracts with the managed care plan that are designed to control costs. Managed health care plans typically cover preventive care such as check-ups.
management accounting	The field of accounting that focuses primarily on identifying, measuring, analyzing, and communicating financial information to a company's internal stakeholders, particularly company managers, so they can decide how best to use the company's resources. Contrast with financial accounting.
manager of agency operations	In an insurer's home office, the person who serves as the primary link between the home office and the insurer's field offices.
manual rating	A method of establishing group insurance premium rates under which the insurer establishes rates for very broad classifications of group insureds using its own experience with a product and information collected by various governmental and trade associations rather than the experience of one particular group. Contrast with experience rating and blended rating.
MAR	medical attendant's report. See attending physician's statement.
margin	(1) The difference between the investment return or interest rate a company pays a customer for the right to invest, or "use," the customer's deposited funds and the investment return or interest rate the company earns on its use of those funds. Also known as a spread. (2) In finance, a margin is collateral that the holder of a financial instrument has to deposit with a broker or other party to cover the credit risk associated with the investment.
marginal cost	The additional cost incurred from producing one additional unit of an existing product or service. Also known as incremental cost.
marginal costing	An accounting method for estimating product-related expenses in which only direct expenses are counted. Also known as direct costing. Contrast with full costing.
marginal unit cost	In accounting, the additional total expense incurred as a result of producing one additional unit of an existing product or service.
market analysis	An evaluation of all of the environmental factors that might affect product sales, including target market characteristics, economic conditions, legal or regulatory requirements, and tax considerations.
market conduct	The term that insurers and regulators use to designate the area of insurer activity involving advertising, sales, and distribution of insurance products.
market conduct examination	In the United States, a formal investigation of an insurer by one or more state insurance departments to determine if the insurer's market conduct—that is, nonfinancial operations—are in compliance with applicable laws and regulations.
market conduct law	A law that regulates how insurance companies conduct business. Typically, market conduct laws pertain to advertising, sales, and distribution of insurance products.
market price	The price a willing buyer will pay a willing selling for a good or service.
market risk	The risk arising from movements in the direction of an entire market, such as the stock market, the bond market, or the real estate market.
market share	The ratio of a company's sales of a product within a specified market at a given point in time to the total industry sales for that type of product in that same market.
market value adjusted (MVA) annuity	An annuity product that features fixed interest rate guarantees combined with an interest rate adjustment factor (the market value adjustment) that can cause the surrender value of the annuity to fluctuate either positively or negatively in response to market conditions. For example, surrendering the policy when market interest rates are higher than the annuity's guaranteed rate can result in the annuity contract owner receiving more money than anticipated for the contract. Conversely, if the annuity must be surrendered when market interest rates are lower than the guaranteed interest rate, the contract owner will receive less than anticipated from the contract. Commonly referred to as a modified guaranteed annuity.
marketing	The way a business organization identifies its customers, defines and develops the products or services that its customers want, and sells and distributes those products or services to customers.
marketing committee	Within an insurance company, a senior management group whose primary role is to provide overall guidance and control of the product development process.
marketing mix	The four primary marketing variables—product, price, promotion, and distribution—that companies manage in order to fulfill marketing goals.
marketing plan	A written document that states the marketing goals for a product or product line, and describes the strategies and the implementation and control efforts the company intends to use to achieve those goals.
master application	An application for group insurance that contains the specific provisions of the requested plan of insurance and is signed by an authorized officer of the proposed policyholder. See also master group insurance contract.
master group insurance contract	A legal document that certifies the relationship between an insurer and a group policyholder and specifies the benefits provided by the contract to the insured group members. Also known as the group insurance policy or group plan.
material misrepresentation	For insurance purposes, a statement made in an application for insurance that is not true and that caused the insurer to enter into a contract it would not have agreed to if it had known the truth.
material nonpublic information	Company information that has not been communicated to the general public and that a reasonable investor would consider important in making an investment decision about the company. Also known as inside information. See insider trading.
maturity date	(1) For endowment insurance, the date on which the insurer will pay an endowment policy's face amount to the policyowner if the insured is still living. (2) For annuities, the date on which the insurer begins to make the periodic income payments under an annuity contract. Also known as the annuity date or income date. (3) For bonds, the date on which the bond issuer must repay to the bondholder the amount originally borrowed.
maturity value	See par value.
maximum daily benefit (MDB)	In a long-term care insurance policy, the maximum amount the policy will pay for eligible expenses incurred during one calendar day. This amount may increase on an annual basis if the policyowner also purchased a benefit increase rider.
maximum out-of-pocket provision	A major medical expense insurance policy provision which states that the policy will cover 100 percent of allowable medical expenses after the insured has paid a specified amount out-of-pocket to satisfy deductible and coinsurance requirements. Also known as a stop-loss provision.
McCarran-Ferguson Act	A U.S. federal law under which the U.S. Congress left insurance regulation to the state governments, as long as Congress determines that regulation to be adequate.
MDB	See maximum daily benefit.
MDO insurance	See monthly debit ordinary insurance.
mediation	An alternate dispute resolution method in which an impartial third party, known as a mediator, facilitates negotiations between the parties to a legal dispute in an effort to create a mutually agreeable resolution of the dispute. See also arbitration.
Medicaid	In the United States, a joint federal and state program that provides basic medical expense and nursing home coverage to low-income individuals and to certain disabled individuals.
medical attendant's report (MAR)	See attending physician's statement.
medical exclusion	See exclusion.
medical expense insurance	A type of health insurance coverage that provides benefits to pay for the treatment of an insured's illnesses and injuries and some preventive care.
medical factor	See medical risk factor.
medical report	A report sometimes compiled during the underwriting of life insurance that contains a proposed insured's answers to medical history questions recorded by a physician and the results of a medical examination of the proposed insured that is conducted by a physician.
medical risk characteristic	See medical risk factor.
medical risk factor	A physical or psychological characteristic of a proposed insured that may increase the likelihood of loss. Also known as a medical factor and a medical risk characteristic.
medical savings account (MSA)	In the United States, a savings account that is to be used in conjunction with a health insurance plan that offers tax advantages. Contributions to an MSA can be directed to pay the deductible under the health insurance plan and/or the medical expenses not covered by the health insurance plan.
medically necessary services	Health insurers provide coverage only for medical services or treatments that are determined to be medically necessary. Medically necessary services are considered to be (1) consistent with the symptoms, diagnosis, and treatment of a specified condition, (2) in accordance with the standards of good medical practice, (3) not solely for the convenience of the insured, insured's family, physician, or other health care provider, and (4) furnished in the least intensive type of medical care setting required by the insured's condition.
Medicare	In the United States, a federal government program that pays for certain health care expenses for persons age 65 and older and persons with certain disabilities.
Medicare Part A	In the United States, the component of the federal government's Medicare program that provides basic hospital insurance that covers the costs of inpatient hospital services, confinement in nursing facilities or other extended care facilities after hospitalization, home care services following hospitalization, and hospice care. Individuals who satisfy Medicare eligibility requirements are automatically enrolled in Medicare Part A without any required premium payment.
Medicare Part B	In the United States, the component of the federal government's Medicare program that provides benefits to cover the costs of physicians' professional services and other services necessary for the diagnosis or treatment of illness or injury; eligible Medicare beneficiaries must enroll to receive benefits and pay a premium for the coverage.
Medicare Part C	In the United States, a type of insurance coverage that can be purchased from private insurance companies by individuals enrolled in Medicare. Medicare Part C takes care of the copays and deductibles charged under Medicare Part A and Medicare Part B. Also known as a Medicare Advantage Plan.
Medicare Part D	In the United States, the component of the federal government's Medicare program that subsidizes the costs of prescription drugs for those individuals enrolled in Medicare Part A and B.
Medicare supplement policy	See Medigap policy.
Medigap policy	An individual medical expense insurance policy sold by an insurance company to supplement Medicare Part A and Part B coverage in the United States. A Medigap policy is designed to cover the gap between the amount of hospital, medical, and surgical expenses incurred by an individual eligible for Medicare and the amount of those expenses that Medicare covers. Also known as a Medicare supplement policy.
member services	Within an insurance company, a customer service unit devoted exclusively to group products.
merger	A transaction in which one corporation absorbs another corporation (combining assets and liabilities of the two corporations), with the absorbed corporation ceasing to exist.
MIB	See MIB Group, Inc.
MIB Group, Inc. (MIB)	A not-for-profit membership corporation established to provide coded information to insurers about medical conditions that applicants have disclosed or other insurance companies have detected in connection with previous applications for insurance.
microinsurance	Insurance protection, characterized by its low cost, that is provided to target populations such as micro entrepreneurs, small farmers, the landless, or women who are not served by typical social or insurance plans.
minimum capital and surplus requirements	Solvency requirements, established by each jurisdiction's regulators, that set specific minimum dollar amounts of capital and surplus for an insurer as a whole and for each of the company's product lines. Also known as statutory minimum capitalization requirements.
minimum cession	In reinsurance, the smallest monetary amount of risk that a direct writer may cede, or the smallest monetary amount of risk that a reinsurer will accept in an automatic cession.
minimum guaranteed interest rate	For a fixed deferred annuity, the minimum interest rate the insurer guarantees to pay on the accumulated value of the annuity for the life of the contract. The minimum rate is almost always stated when the annuity policy is issued, and usually ranges from 1.5 percent to 3 percent. However, sometimes the minimum guaranteed interest rate is linked to movements of an external interest indicator such as 5-year U.S. Treasury Notes.
minimum premium plan (MPP)	A group health insurance funding mechanism under which the group policyholder deposits into a special account funds that are sufficient to pay a stated amount of expected claims, and the insurer administers the plan and pays claims from that special account until the funds are exhausted. Thereafter, the insurer is responsible for paying claims from its own funds, and it charges the group policyholder a premium for the coverage it provides.
misappropriation of funds	The illegal misuse of a customer's or an insurer's money, even if the use is on a temporary basis.
misrepresentation	Any false or misleading statement. In insurance sales, misrepresentations typically involve untrue comparisons of policies, misleading statements about the financial condition of a competitor, or false statements about policy benefits.
mission statement	A formal written statement of a company's fundamental purpose or reason for being.
misstatement of age or sex provision	A life insurance or annuity policy provision that describes the action the insurer will take to adjust the amount of the policy benefit in the event that the age or sex of the insured is incorrectly stated.
MMMF	See money market mutual fund.
modco	See modified coinsurance.
model act	See model law.
model law	A sample law that has been created and adopted by a national or international organization of regulators, lawmakers, lawyers, and/or academics and that the sponsoring organization encourages legislatures to enact. Sometimes referred to as a model act.
Model Supervision Act	See Administrative Supervision Model Act.
modified coinsurance (modco)	A type of proportional reinsurance in which (1) the direct writer maintains the entire reserve for each policy; and (2) the direct writer and reinsurer share proportionately in the reserve obligation, the direct writer's gross premium, and the risks of loss from expenses for death, surrender, other benefits, or lapse. Modco typically is used for cash value life insurance and annuity products; and it is particularly appropriate for interest-sensitive products.
modified coverage life insurance policy	A whole life insurance policy under which the amount of insurance provided decreases by specific percentages or amounts either when the insured reaches certain stated ages or at the end of stated time periods.
modified guaranteed annuity	See market value adjusted annuity.
modified-premium whole life insurance policy	A whole life insurance policy for which the annual premium amount changes after a specified initial period (typically 5 or 10 years).
money laundering	The illegal practice of engaging in financial transactions to hide the identity, source, and/or destination of money associated with criminal activity.
money market mutual fund (MMMF)	A mutual fund that pools the funds of customers to invest in short-term, low-risk investments and then pays an interest rate according to the performance of these investments.
monthly debit ordinary (MDO) insurance	An individual life insurance policy that is marketed under the home service distribution system and is paid for by monthly premium payments.
moral hazard	In the underwriting of insurance, a characteristic that exists when the reputation, financial position, or criminal record of an applicant or a proposed insured indicates that the person may act dishonestly in the insurance transaction. Contrast with physical hazard.
morbidity rate	The rate at which sickness and accidents occur among a given group of people. Contrast with mortality rate.
morbidity risk	For an insurance product, the risk that health insureds will experience sickness, accidents, or impaired conditions more frequently or for a longer period than the levels built into the product design.
morbidity table	A chart that shows the incidence of sickness and accidents, by age, occurring among a defined group of people. Contrast with mortality table.
mortality and expense (M&E) risk charge	A fee charged the owner of a variable annuity which covers various risks and expenses assumed by the insurer, including the risk involved in providing the annuity death benefit and certain other guarantees.
mortality rate	The rate at which death occurs among a specified group of people during a specified period, typically one year. Contrast with morbidity rate.
mortality risk	The risk that actual mortality will differ from expectations, causing the insurer to lose money on its products. For life insurance products, mortality risk is the likelihood that a person will die sooner than statistically expected; for annuities, mortality risk is the likelihood that a person will live longer than statistically expected.
mortality table	A chart that indicates the number of people in a defined group who are likely to die at certain ages. Contrast with morbidity table.
mortality table with projection	A type of mortality table in which the rates have been adjusted using the projection method to show future changes in mortality. Contrast with static mortality table.
mortgage	A long-term loan, secured by a pledge of specified property, that the borrower agrees to pay off with regular payments of principal and interest.
mortgage closing	A real estate transaction in which property ownership is transferred by deed, the purchase price is paid, and a promissory note and mortgage are executed.
mortgage life insurance	A plan of decreasing term insurance designed to provide a benefit amount that corresponds to the decreasing amount owed on a mortgage loan. Sometimes referred to as mortgage redemption insurance.
mortgage origination	The process of creating a mortgage loan.
mortgage redemption insurance	See mortgage life insurance.
mortgage refinancing	The process of obtaining a new mortgage and using some or all of the new mortgage loan to pay off the old mortgage.
mortgage underwriting	For mortgages, evaluating the credit of the borrower and the level of risk that each borrower poses to the lender.
mortgage-backed securities	Bonds secured by a pool of residential or commercial mortgage loans.
mortgagee	A creditor to whom an interest in real property is transferred as security for a mortgage loan.
mortgagor	A borrower who transfers an interest in real property to a creditor in exchange for a mortgage loan.
motor vehicle record (MVR)	In the United States, a report that contains information about a person's driving history, including information about traffic violations, arrests, and convictions. Often obtained during the underwriting of insurance.
MPP	See minimum premium plan.
MSA	See medical savings account.
multi-life policy	A life insurance contract that is written on two or more lives.
multiple-employer group	In group insurance, an insured group that consists of the employees of (1) two or more employers in the same industry, (2) two or more labor unions, or (3) one or more employers and one or more labor unions.
multiple-line agent	An insurance sales agent who sells life insurance, health insurance, annuities, and property- casualty products for one insurance company, with the preponderance of sales being property-casualty products. See also career agent and independent agent.
multistate cooperative examination	A market conduct examination performed on behalf of a number of states that have agreed upon the standards against which an insurer will be evaluated.
municipal bond	A bond issued by a state or local government entity whose interest income is generally exempt from federal, state, and local income taxes if the bondholder resides in the state that issued the bond.
mutual fund	An account established by a financial services company that pools the funds of many people and invests in a variety of financial instruments, such as stocks and bonds.
mutual fund company	See open-end investment company.
mutual insurance company	An insurance company that is owned by its policyowners. Contrast with stock insurance company.
mutualization	The process an insurer undertakes to convert from a stock form of ownership to a mutual form of ownership.
MVA annuity	See market value adjusted annuity.
MVR	See motor vehicle record.

NAIC	See National Association of Insurance Commissioners.
named perils coverage	A type of property insurance which covers only losses that are specifically named in the policy. For example, the policy might cover losses resulting from fire. Contrast with open perils coverage.
NAR	See net amount at risk.
NASD	National Association of Securities Dealers. See Financial Industry Regulatory Authority (FINRA).
National Association of Insurance Commissioners (NAIC)	In the United States, a nongovernmental association of the insurance commissioners of all the states whose primary function is to promote uniformity of state insurance regulation by developing model laws and regulations as guidelines for the states.
National Association of Securities Dealers (NASD)	See Financial Industry Regulatory Authority (FINRA).
National Conference of Insurance Legislators (NCOIL)	An organization of state legislators who are concerned with the issue of insurance regulation.
National Insurance Producer Registry (NIPR)	In the United States, a nonprofit affiliate of the National Association of Insurance Commissioners (NAIC) that serves as a gateway to producer information.
National Organization of Life and Health Guaranty Associations (NOLHGA)	In the United States, an organization that handles problems of insolvencies involving large, multistate insurers and whose primary function is to facilitate communications among the various state guaranty associations, which operate independently from one another.
NAV	See net asset value.
NCOIL	See National Conference of Insurance Legislators.
needs analysis	In insurance sales, the process of developing a detailed personal and financial picture of a prospect in order to evaluate the prospect's financial needs.
negative tail scenario	A highly unfavorable scenario identified in a stochastically modeled product design as a potential outcome.
negative variance	A variance in which the actual amount or percentage of an amount is less than expected. Contrast with positive variance.
negligence	A private wrong committed by a person who failed to exercise the legally required degree of care in doing something that is otherwise legally permissible or omitting to do something that is otherwise legally required.
negotiable instrument	A written document that represents an unconditional promise or order to pay a specified amount of money upon the demand of the owner of the instrument.
negotiated trusteeship	For group insurance purposes, when collective bargaining between a union and an employer result in an agreement to provide the organization with insurance.
net amount at risk (NAR)	The difference between the face amount of a life insurance policy—other than a universal life policy—and the policy reserve (or cash value) at the end of any given policy year.
net asset value (NAV)	For variable annuity subaccounts and mutual funds, the NAV is calculated as the total value of the subaccount or mutual fund assets after expenses divided by the total number of fund shares outstanding.
net cash flow	For an insurance or annuity product, a product's total cash inflows generated from premiums, investments, and other sources minus the total cash outflows generated by such items as commissions, expenses, and benefit payments; focuses only on cash.
net cash surrender value	See also cash surrender value.
net cash value	See also cash surrender value.
net income	See profit.
net level premium approach	A method insurers use to calculate contractual reserves that assumes that the amount of a policy's net premiums does not change during the life of a policy. See also prospective reserve valuation and retrospective reserve valuation.
net present value (NPV)	For an investment project, a monetary amount that is generally calculated by subtracting the initial investment in the project from the present value of the project's earnings over a future period, usually the entire expected life of the project.
net profit margin	A financial ratio that shows how much after-tax profit is generated by each dollar of total revenue; found by dividing net income by total revenues. Also known as return on revenue ratio.
net reserve valuation method	A method of computing insurance policy reserves that excludes product-related expenses. Contrast with gross reserve valuation method.
net single premium	For a life insurance or an immediate annuity product, the actuarial present value at the time of issue of the product's total expected future cost of benefits.
net worth	In accounting, the difference between a person's or an organization's assets and liabilities.
netting off	A process by which a direct writer subtracts the claim amount owed to it by a reinsurer from the amount that the direct writer owes the reinsurer for premiums.
new business processing	In insurance, all of the activities required to process applications for insurance products, evaluate the risks associated with applications for life insurance, and issue policies.
new business strain	See surplus strain.
new money method	For fixed annuities, an interest crediting method in which an insurer applies different interest rates to various portions of the money in an annuity account, depending on the guarantees in effect when each premium went into the annuity account. The current interest rate, the interest terms, and all guarantees on the date of a given premium payment remain attached to the amount of that payment. Contrast with portfolio method.
NGEs	See nonguaranteed elements.
NIGO rates	See not-in-good-order rates.
NIPR	See National Insurance Producer Registry.
NOLHGA	See National Organization of Life and Health Guaranty Associations.
no-load fund	A type of mutual fund that does not assess sales charges.
nominal interest rate	An interest rate that is quoted contractually by a lender or a borrower and does not take into account the effects of compounding. The nominal interest rate will always be less than the effective interest rate. Also known as stated interest rate. Contrast with effective interest rate.
nonadmitted asset	An asset that cannot be reported on the Assets page of the U.S. Annual Statement and that may not be applied to support an insurer's required reserves. Contrast with admitted asset.
nonadmitted insurer	See unauthorized insurer.
noncancellable policy	An individual health insurance policy that is guaranteed to be renewable until the insured reaches the limiting age stated in the contract as long as the policy's premiums are paid on time. The insurer cannot increase the premium rate under any circumstances. See also cancellable policy, conditionally renewable policy, guaranteed renewable policy, optionally renewable policy.
noncontractual reserve	A liability amount that an insurer estimates it will need to pay the insurer's business obligations that are not directly attributable to benefits payable for a specified product. All reserves that are not contractual reserves are classified as noncontractual reserves. Contrast with contractual reserve.
noncontributory plan	A group insurance plan for which the group insureds are not required to pay any part of the premium for the coverage; the premiums are paid entirely by the policyholder and all eligible group members are provided with coverage automatically. Contrast with contributory plan.
noncontrollable expense	A cost over which no specified manager or organizational unit has power or influence. Contrast with controllable expense.
noncurrent assets	See long-term assets.
noncurrent liabilities	See long-term liabilities.
nondiversifiable risk	Risks that have broad, similar effects on all assets in an economic system and therefore cannot be eliminated through diversification. Also known as systematic or systemic risk. Contrast with diversifiable risk.
nonduplication of benefits provision	In a health insurance policy, a coordination of benefits provision that, if included in a secondary provider's plan, limits the amount payable by the secondary plan to the difference, if any, between the amount paid by the primary plan and the amount that would have been payable by the secondary plan had that plan been the primary plan.
nonforfeiture provision	(1) A cash value life insurance policy provision that sets forth the options available to the owner of a cash value policy if the policy lapses or if the policyowner decides to surrender the policy. (2) An annuity contract provision that states the benefit amounts that an insurer will pay under a deferred annuity contract if the premium payments stop or the contract is surrendered prior to the contract's maturity.
nonforfeiture values	The benefits that an insurer guarantees to a policyowner if the insurance contract lapses.
nonguaranteed elements (NGEs)	In life insurance and annuity products, product features that allow an insurer to reward customers when the insurer has experienced or anticipates that it will experience favorable deviations from its assumptions or, conversely, allow the insurer to charge customers more when the insurer has experienced or anticipates it will experience unfavorable deviations from its assumptions.
noninstallment credit	Any loan or credit arrangement that does not require the borrower to make a series of fixed periodic payments on the loan or credit balance.
nonlife insurance company	See property/casualty insurance company.
nonmedical basis	In life insurance sales, a way of applying for insurance in which the proposed insured does not have to provide medical proof of insurability.
nonmedical limit	The total amount of life insurance from all sources that an insurer will permit to be issued on a proposed insured without requiring the proposed insured to undergo a medical examination.
nonmedical supplement	In life insurance sales, a document that contains a proposed insured's answers to medical history questions recorded by a producer or teleunderwriter at the time of application. Also known as a statement of health (SOH).
nonpar policy	See nonparticipating policy.
nonparticipating policy	A type of life insurance policy in which the policyowner does not share in the insurer's surplus by receiving policy dividends. Also known as a nonpar policy. Contrast with participating contract.
nonproportional reinsurance	A type of reinsurance arrangement in which neither the reinsurer nor the direct writer knows in advance what share of a risk the reinsurer will ultimately assume. Instead, after a direct writer's losses reach a specified maximum limit, the reinsurer begins to share in expenses for claims.
nonproprietary product	In insurance sales, an insurance product developed by one insurance company that is sold by another insurance company.
nonpublic personal information	Information about a customer that a financial services company collects in connection with providing a financial product or service to the customer and that is not available from public sources.
nonqualified annuity	An annuity that does not qualify to receive favorable tax treatment and is purchased with money that has already been taxed.
nonresident producer	From the perspective of a given state within the United States, an insurance producer who doesn't live in that state or whose principal places of business are located outside that state.
nonsystematic risk	See diversifiable risk.
nonvested commission	In insurance sales, a commission that is payable to a producer only if the producer still represents the insurer when the commission becomes due. Contrast with vested commission.
not taken up	See undeliverable.
notice of appointment	In the United States, a written statement an insurer must file with a state insurance department in order to appoint a producer as its agent.
notice of claim provision	See claims provision.
notice of expiry	In reinsurance, a document that the reinsurer uses to notify the direct writer that an offer to reinsure is due to expire and to request additional information, a cession, a drop notice, or an extension request from the direct writer.
notice of transfer	A written document that provides policyowners affected by an assumption reinsurance agreement with information about the agreement and their right to consent to or reject the transfer of their policies.
notification for fac-ob reinsurance provision	A reinsurance agreement provision that specifies the (1) information the direct writer must provide to notify the reinsurer of risks ceded and (2) maximum time periods allowed for the reinsurance parties to respond to each other concerning capacity available and capacity accepted.
not-in-good-order (NIGO) rates	In insurance new business, the percentage share of all incoming application paperwork that is received with incomplete documentation.
NPV	See net present value.
numerical rating system	In life insurance underwriting, a risk classification method in which a number—a numerical rating—is assigned to an individual proposed insured according to the degree of mortality risk he represents to the insurer; the underwriter then places the proposed insured in a risk class according to the numerical value.
nursing home	For purposes of long-term care (LTC) insurance, a custodial facility that provides basic nonmedical care and medical care as necessary to patients.

OAS Act	See Old Age Security Act.
OASDHI Act	See Old Age, Survivors, Disability and Health Insurance Act.
occupational rating classes	For purposes of underwriting disability income coverage, groupings of occupations according to the relative degree of risk the occupations present.
Occupational Safety and Health Administration (OSHA)	A United States federal agency that develops and enforces mandatory job safety and health standards to reduce safety hazards and health hazards in the workplace.
Office of the Superintendent of Financial Institutions (OSFI)	In Canada, a federal regulatory agency responsible for supervising all federally chartered, licensed, or registered insurance companies.
Old Age Security (OAS) Act	A Canadian federal universal public pension plan that provides a pension to virtually all Canadian residents who are age 65 or older, whether or not they have been employed.
Old Age, Survivors, Disability, and Health Insurance (OASDHI) Act	In the United States, federal legislation that protects covered individuals from loss of income resulting from retirement, death, or disability. Commonly known as the Social Security Act.
open contract	A contract that identifies the documents that constitute the contract between the parties, but the enumerated documents are not all attached to the contract. Contrast with closed contract.
open enrollment period	In group insurance, a period of time—typically a specified 30 or 31 days per year—during which eligible people who did not join a group insurance plan at the first opportunity subsequently may join the plan without providing evidence of insurability.
open perils coverage	A type of property insurance that covers all types of losses to the property except for those perils specifically excluded from the coverage. For example, loss due to flooding might be excluded in the policy. Contrast with named perils coverage.
open-end credit	A type of noninstallment credit that allows a person to borrow money repeatedly up to a prearranged limit and to make at least minimum payments, allowing the credit balance to continue to accrue interest. Also known as revolving credit.
open-end investment company	An investment company that remains ready at all times to repurchase its own shares at or near the share's net asset value. Also known as a mutual fund company.
operating efficiency ratios	See activity ratios.
operating expenses	The costs that a company incurs in conducting its normal business operations. For insurers, costs other than expenses for contractual benefits. Types of operating expenses include development expenses, acquisition expenses, maintenance expenses, and overhead expenses.
operational planning	The process of determining how to accomplish the specific tasks that need to be performed to carry out the organization's strategic plans. Also known as tactical planning.
operational risk	A broad category of risks originating from a company's (1) inadequate or failed internal processes and controls, people, or systems, or (2) external events.
opportunity cost	A benefit that is forfeited or given up in choosing one decision alternative over another.
opt in	For purposes of information collection and disclosure, a mechanism in the United States that limits the disclosure of information collected in connection with insurance transactions by requiring insurers to obtain written authorization from customers before disclosing the customer's information to third parties. Under opt in, the customer must say, "Yes, it is OK to disclose my information."
opt out	For purposes of information collection and disclosure, a mechanism in the United States that limits the disclosure of information collected in connection with insurance transactions by allowing an insurance customer to direct the insurer not to disclose certain information. Under opt out, the customer must say, "No, please do not disclose my information."
optional insured rider	See second insured rider.
optional modes of settlement	See settlement options.
optionally renewable policy	An individual health insurance policy that grants the insurer the right to refuse to renew the policy for any reason on certain dates specified in the contract and to add coverage limitations and increase the premium rate if it does so for a class of optionally renewable policies. See also cancellable policy, conditionally renewable policy, guaranteed renewable policy, noncancellable policy.
oral specimen (saliva) test	In insurance underwriting, a means of screening a proposed insured for the habitual use of nicotine or cocaine and the presence of HIV antibodies by testing a specimen of the proposed insured's saliva.
ordinary annuity	A series of equal payments made at the end of each payment period over a fixed amount of time. Contrast with annuity due.
ordinary life insurance policy	See continuous-premium whole life policy.
organizational customer	A business or organization (such as a government, an educational institution, or a charity) that buys a product or service for its benefit or the benefit of its employees or members. Also known as an institutional customer.
organizational market	A market that consists of people, groups, or formal organizations that purchase products and services for business purposes. Also known as the business market.
original age conversion	A conversion of a term life insurance policy to a cash value life insurance policy in which the premium rate for the cash value policy is based on the insured's age when the original term policy was issued. Contrast with attained age conversion.
orphan policyowner	An insurance policyowner who does not currently have a relationship with a producer.
OSFI	See Office of the Superintendent of Financial Institutions.
OSHA	See Occupational Safety and Health Administration.
OTC market	See over-the-counter market.
other insured rider	See second insured rider.
out-of-pocket maximums	In a medical expense insurance plan, a specified maximum amount that limits the insured person's payment obligations. Once the insured reaches the out-of-pocket maximum, the insurance pays all further covered costs. Out-of-pocket maximums can be limited to a specific benefit category (such as prescription drugs) or can apply to all coverage provided during a specified amount of time, such as a benefit year.
outsourcing	The process of paying external specialists to handle specified business activities instead of using an organization's own employees or processes to perform those activities.
overhead expenses	See indirect costs.
overinsurance	An amount of applied-for insurance that, together with in-force insurance, is excessive in relation to the need for which coverage is being purchased.
overinsurance provision	An individual health insurance provision which states that the benefits payable under the policy will be reduced if the insured is overinsured. An overinsured person would be one entitled to receive either (1) more in medical expense benefits than the actual costs incurred for treatment or (2) a greater disability income amount during disability than the amount that would have been earned from working.
override	See overriding commission.
overriding commission	In insurance sales, a sales commission that is paid to the head of an agency office, typically a general agent, on the new and renewal business generated by the agents who work in that office. Also known as an override.
over-the-counter (OTC) market	An electronic communications network over which securities that are not bought and sold on an exchange are traded.
owners' equity	The investment the owner of a company has in the company. For stock insurers, owners' equity consists of capital and surplus; for mutual insurers, owners' equity consists only of surplus.

P&C insurance company	See property/casualty insurance company.
package policy	An insurance policy that provides coverage from two or more types of insurance—property and liability, for example—in one policy.
package selling	In insurance sales, a prospecting method that involves developing a standardized sales presentation for a relatively simple insurance plan such as mortgage insurance and then looking for prospects who are likely to need that coverage.
paid-up addition	See dividend addition.
paid-up additional insurance dividend option	A policy dividend option under which the insurer uses any declared policy dividend to purchase paid-up additional insurance on the insured's life. The paid-up additional insurance is issued on the same plan as the basic policy and in whatever face amount the policy dividend can provide at the insured's age at the time of purchase.
paid-up additions option benefit	A supplemental life insurance policy benefit offered in connection with a whole life insurance policy that allows the policyowner to purchase paid-up additions to the policy on stated dates in the future without providing evidence of the insured's insurability.
paid-up policy	A life insurance policy that requires no further premium payments but continues to provide coverage.
par policy	See participating contract.
par value	(1) For a bond, the amount of money originally borrowed and that must be repaid at maturity; the designated legal monetary value assigned to each bond—generally $1,000. Also known as bond principal, face amount, maturity value, face value, or simply principal. (2) For stock, the designated legal value assigned to each outstanding share of common stock.
paramedical report	The portion of an individual life insurance application that contains (1) a proposed insured's answers to medical history questions recorded by a paramedical examiner and (2) the results of an examination that a paramedical examiner conducts. A paramedical examiner is a medical provider, other than a physician, such as a nurse or physician's assistant.
partial disability	A disability that prevents the insured either from performing some of the duties of his usual occupation or from engaging in that occupation on a full-time basis.
partial disability coverage	Partial disability coverage provides income replacement benefits to an insured whose disability prevents him either from performing some of the duties of his usual occupation or from engaging in that occupation on a full- time basis. Partial disability coverage is typically offered as a supplemental benefit to a disability income policy.
partial surrender	See withdrawal.
partial surrender provision	See policy withdrawal provision.
partial withdrawal	See withdrawal.
participating contract	An insurance or annuity contract that pays the contract owner a policy dividend when the insurer experiences favorable financial results. The portion of the insurer's earnings that is available for distribution is called the divisible surplus. Also known as a participating policy, a par policy, or a with profits policy. Contrast with nonparticipating policy.
participating policy	See participating contract.
participation limit	In reinsurance, a reinsurer's maximum monetary limit on coverage currently in force or yet-to-be -placed on any given person. If the total amount of insurance—currently in force plus yet-to-be-placed—with all companies on a given person exceeds a reinsurer's participation limit, the reinsurer will automatically refuse to provide reinsurance on a policy covering that person.
participation rate	For equity indexed annuities, a percentage rate an insurer establishes to indicate how much of an increase in the index-linked investments will be used to calculate earnings for the annuities. For example, if the participation rate is 60 percent and the calculated change in the associated index is 8 percent, then the insurer will credit equity indexed annuities with 4.8 percent (.6 multiplied by .08) earnings. An insurer usually guarantees the participation rate for a set period, which may be from one year up to the entire term.
partnership	A type of company that is owned and operated by two or more people (the partners), who jointly earn all company profits and are responsible for all company debts. A partnership dissolves upon the death or withdrawal of one of the partners.
partnership insurance	A type of business insurance that provides cash so that the remaining partners in a business can buy the business interest of a deceased or disabled partner. See also business continuation insurance plan.
Patriot Act	See USA PATRIOT Act.
payback period	The number of years required for the estimated future earnings from an investment to equal the amount initially invested.
payee	(1) The person or entity who is to receive insurance policy proceeds in accordance with the terms of a settlement agreement. ( 2) The person or entity designated to receive the periodic income payments under an annuity contract.
payout annuity	An annuity in the payout period.
payout options	The choices an annuity contract owner has as to how the insurer will distribute the funds in an annuity during the payout period. Typically, insurers offer the following four options: (1) The lump sum distribution method allows the contract owner to receive the balance of his account in a single payment. (2) The fixed period option provides that the annuity's accumulated value will be paid out over a specified period of time. (3) The fixed amount option provides that the annuity's accumulated value will be paid out in a preselected payment amount until the accumulated value is exhausted. (4) A life annuity option provides that periodic income payments will be tied in some manner to the life expectancy of a named individual. The term "payout options" is more frequently associated with annuities, while the term "settlement options" is more frequently associated with life insurance policies.
payout period	For an annuity contract, the period during which the insurer makes periodic income payments to the payee. Also known as the liquidation period.
PBA	See principles-based approach.
PBGC	See Pension Benefit Guaranty Corporation.
PCP	See primary care provider.
PDB	See Producer Database.
pension	A lifetime monthly income benefit that begins at retirement.
Pension Benefit Guaranty Corporation (PBGC)	In the United States, a federal corporation designed to encourage the continuation and maintenance of private-sector defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at a minimum.
pension plan	An arrangement under which a plan sponsor provides plan participants with a lifetime monthly income benefit that begins at retirement.
per capita beneficiary designation	A life insurance policy beneficiary designation in which the policy benefits are to be paid to a class of people, such as "my children," and all class members who survive the insured share the policy proceeds equally. For example, assume that a policyowner designated "his children" as the beneficiary of his life insurance policy. Also suppose that the policyowner had two children: Amy and Bob. If Amy predeceased her father, the policy's benefits would be paid entirely to Bob as the only surviving member of the class. Contrast with per stirpes beneficiary designation.
per stirpes beneficiary designation	A life insurance policy beneficiary designation in which a policy's proceeds are left to a class of people, such as "my children," and to which the descendants of a deceased class member take the deceased class member's share of the policy proceeds by representation. Suppose a policyowner specified "his children" as the policy's beneficiary. Also suppose that the policyowner had two children: Amy and Bob; and that Amy had one child. If Amy predeceased her father, the policy's benefits would be divided so that Bob would receive one-half of the proceeds and Amy's child would receive the other half. Contrast with per capita beneficiary designation.
percentage rating method	A method of establishing individual health insurance premiums for substandard risks in which the insurer adds to the standard premium amount an extra percentage of that standard premium amount to reflect the additional risk.
percentage-of-income rule	A tool underwriters use to determine ability to pay premiums which stipulates the amount of money a proposed insured can afford to spend annually on insurance according to a specified percentage of the proposed insured's current gross earned and unearned income.
period budget	A type of budget that covers a specific time frame, such as one month or one year, and expires at the end of that time frame. Contrast with rolling budget.
period certain	The stated period over which the insurer will make periodic income payments for a period certain annuity.
period certain annuity	An annuity with a period certain payout option. A period certain annuity is payable for a stated period of time, regardless of whether the annuitant lives or dies. Also known as an annuity certain.
permanent flat extra premium	In individual life insurance underwriting, an amount added to the premium for cases in which a nonmedical risk is expected to remain constant throughout the life of the policy. See also flat extra premium method. Contrast with temporary flat extra premium.
permanent life insurance	See cash value life insurance.
persistency	The retention of business that occurs when an insurance policy remains in force as a result of the continued payment of the policy's renewal premium. Also known as retention.
persistency bonus	A sum of money paid as compensation to an insurance producer when a policy continues in force beyond an initial period, usually five years.
persistency rate	A measurement of the persistency of a block of insurance policies determined by the percentage of business in force at the beginning of a specified period that remains in force at the end of the period. Contrast with lapse rate.
personal factor	In the underwriting of insurance, a lifestyle choice that can significantly affect a person's health or longevity.
personal history interview (PHI)	During the underwriting process, a conversation between an underwriter or another insurance company employee and the proposed insured in which the underwriter verifies the accuracy of information already received about the proposed insured and obtains any additional information needed for underwriting.
personal information	In insurance underwriting and administration, information gathered about an individual in connection with specified transactions and from which judgments can be made about the individual's personal characteristics, such as character, habits, finances, credit, and health.
personal loan	See installment credit.
personal property	Any property that is not real estate; examples include automobiles, computer equipment, and furniture. Contrast with real property.
personal risk	The risk of economic loss associated with death, poor health, injury, and outliving one's economic resources.
personal risk factor	In the underwriting of insurance, a lifestyle choice that can significantly affect a person's health or longevity.
personal selling	An insurance sales promotion process that relies on a company's producers presenting information during face-to-face or telephone meetings with one or more prospective customers.
personal selling distribution system	A type of insurance distribution system in which commissioned or salaried sales representatives sell products through oral and written presentations made to prospective customers.
personal-producing general agent (PPGA)	An independent insurance agent who receives special consideration from an insurance company if he or she satisfies minimum sales production requirements.
pharmaceutical database	In the United States, a database that insurers use during the underwriting process that contains prescription histories for proposed insureds. Prescription histories are indicative of medical conditions proposed insureds have or what treatments have been prescribed.
PHI	See personal history interview.
physical examination provision	A provision included in disability income insurance policies which grants the insurer the right to have an insured who has submitted a disability claim examined by a physician of the insurer's choice, at the insurer's expense.
physical hazard	In the underwriting of insurance, a physical characteristic that may increase the likelihood of loss. Contrast with moral hazard.
physicians' expenses	In health insurance, medical expenses that include charges associated with physicians' visits both in and out of the hospital.
placement	In reinsurance, a process in which a direct writer and reinsurer activate reinsurance coverage for a new automatic, facultative, or fac-ob cession.
plan administrator	The party that is responsible for the administrative aspects of a group insurance or group retirement plan's operation.
plan document	A detailed legal agreement that establishes the existence of an employer-sponsored retirement plan and specifies the rights and obligations of various parties to the plan.
plan participant	An employee or union member covered by a group retirement plan.
plan sponsor	An employer or union that establishes a group retirement plan.
platform employee	In a bank-distributed system of insurance sales, a bank employee whose primary function is to handle customer service issues and sell traditional bank products such as checking and savings accounts, but who is also licensed to sell insurance.
point-of-service (POS) plan	In the United States. a managed health care plan that offers incentives for plan members to use medical providers who belong to the plan's network of providers; but allows plan members to choose, at the point of service, whether to seek medical care from inside or outside of the network. Medical services provided by those outside of the network are usually reimbursed in a manner similar to a traditional indemnity plan. See also managed care plan and indemnity benefits.
point-to-point method	For equity indexed annuities, an index-crediting mechanism that involves comparing the value of the index at the start of the annuity contract term to its value at the end of the term to determine what, if any, excess interest has accrued because of a change in the index.
policy	See insurance policy.
policy anniversary	In general, the date on which coverage under an insurance policy became effective.
policy benefit	(1) The amount of money an insurer agrees to pay under a life insurance policy when a covered loss occurs. (2) The amount of money paid under a health insurance policy when an insurance claim is approved.
policy dividend	An amount of money an insurer pays to the owner of a participating life insurance policy from the company's divisible surplus. The payment is considered to be a return of a portion of the premium the policyowner paid to the company in that policy year. Also known as policyowner dividend. See also divisible surplus. Contrast with stockholder dividend.
policy dividend options	The ways in which the owner of a participating insurance policy may receive policy dividends. See also additional term insurance dividend option, cash dividend option, dividend accumulations option, paid-up additional insurance dividend option, and premium reduction dividend option.
policy filing	The act of submitting a policy contract form and any other legally required forms and documents to the appropriate regulatory authority for approval.
policy form	A standardized form that shows the terms, conditions, benefits, and ownership rights of a particular type of insurance product.
policy issue	The insurance company unit that prepares the insurance contract and facilitates the delivery of the policy to the customer.
policy loan	A loan a policyowner receives from an insurer using the cash value of a life insurance policy as security.
policy loan provision	A life insurance policy provision that gives the policyowner the right to take out a loan for an amount that does not exceed the policy's cash value less one year's interest on the loan.
policy loan repayment dividend option	An option included in a life insurance policy that, if chosen by the policyowner, allows the insurer to apply policy dividends toward the repayment of an outstanding policy loan.
policy proceeds	See death benefit.
policy reserve	See contractual reserve.
policy rider	A form that is attached to an insurance policy and changes or amends the policy's provisions. The policy rider becomes part of the insurance contract and either expands or limits the benefits payable under the contract. Also known as an endorsement or a rider.
policy summary	A document that insurers provide to prospective insurance purchasers that includes information specific to the policy being purchased including premium and benefit data. Contrast with Life Insurance Buyer's Guide.
policy term	The specified period of time during which a term life insurance policy provides coverage.
policy withdrawal	See withdrawal.
policy withdrawal provision	A universal life insurance policy provision that permits the policyowner to reduce the amount of the policy's cash value by withdrawing up to the amount of the cash value in cash. Often called a partial surrender provision.
policyholder	In group insurance, the employer or other organization that decides what kind of coverage to purchase for the group, negotiates the terms of the group insurance contract, and enters into the group insurance contract with the insurer.
policyowner	A person or business that owns an insurance policy.
policyowner dividend	See policy dividend.
policyowner dividend liabilities	In insurance, amounts that represent all policy dividends that have been declared by an insurer's board of directors, but which have not yet been paid to policyowners.
pooling	A method used in determining group insurance premium rates in which an insurer combines several small groups into one large group, or pool, and underwrites the pool as if it were one group.
population mortality table	A type of mortality table that shows the rates of death for the population as a whole or for a cross-section of the general population. Population mortality differs by country, so a mortality table valid one country may not be valid in another country.
portability	(1) A characteristic of group insurance coverage that allows the group insured to continue insurance coverage after leaving the group. (2) A characteristic of an employer-sponsored retirement plan that allows a participating individual to move vested retirement benefits from that plan to another employer-sponsored or individual retirement plan when the participating individual leaves employment with the plan sponsor.
portfolio	A collection of assets with differing degrees and kinds of risk, usually assembled for meeting a defined set of goals.
portfolio immunization	Investment strategies designed to protect fixed-income portfolios against interest-rate risk.
portfolio method	For fixed annuities, an interest-crediting method under which the insurer applies one specified current interest rate to all money in an annuity account on the interest-crediting date, regardless of when the money was paid into the account. Contrast with new money method.
portfolio performance	A portfolio's change in market value over a specified performance period.
portfolio reinsurance	See assumption reinsurance.
portfolio segment	A portion of a life insurance company's general account that typically is designated to support a specified product line of the insurer's guaranteed products.
portfolio segmentation method	See segmentation method.
POS plan	See point-of-service plan.
positive variance	A variance in which the actual amount or percentage of an amount is greater than expected. Contrast with negative variance.
post-notice	A notice that must be sent to an insurance applicant in the United States if an underwriter denies an application or rates a policy based wholly or partially on information contained in a report from a consumer reporting agency. See also consumer credit report and pre-notice.
PPA	See preferred provider arrangement.
PPGA	See personal-producing general agent.
PPO	See preferred provider organization.
pre-approach letter	In direct-mail insurance prospecting, a personalized letter that is narrowly targeted to prospects who would be attracted to the idea presented in the letter.
pre-contract training	A trial program that permits a candidate for insurance sales who has satisfied an insurer's initial screening process to prepare to become a producer while continuing to work at a current job.
pre-existing condition	(1) For purposes of individual health insurance, an injury or sickness that occurred or manifested itself within a specified period before the policy was issued and that was not disclosed on the application for insurance. (2) For group health insurance, a condition for which an individual received medical care during a specified period, such as three months, immediately prior to the effective date of coverage.
preference beneficiary clause	A life insurance policy provision which states that, if the policyowner does not name a beneficiary, then the insurer will pay the policy proceeds in a stated order of preference. Also known as a succession beneficiary clause.
preferred beneficiary	In Canada, a certain family member of the insured for whom policyowners of in-force policies issued prior to July 1, 1962, in common law jurisdictions have limitations on their ability to change the beneficiary designation.
preferred class	See preferred risk class.
preferred premium rate	For insurance, a lower-than-standard premium rate charged insureds who are classified as preferred risks. Also known as preferred risk discount.
preferred provider	In the United States, a health care provider, such as a physician, who enters into a preferred provider arrangement with a health care insurer. See also preferred provider arrangement.
preferred provider arrangement (PPA)	A contract between a health care insurer and a health care provider or group of providers who agree to provide specified covered services to insureds at agreed-upon fees.
preferred provider organization (PPO)	A managed health care plan that arranges with health care providers for the delivery of health care at a discounted cost and provides incentives for PPO members to use the health care providers who have contracted with the PPO, but that also provides some coverage for services rendered by health care providers who are not part of the PPO network. See also managed health care plan and preferred provider arrangement (PPA).
preferred risk class	In individual life insurance underwriting, a risk class composed of proposed insureds whose anticipated mortality is lower than average and who represent the lowest degree of mortality risk. Contrast with standard risk class, substandard risk class, and declined risk class.
preferred risk discount	See preferred premium rate.
preferred stock	A type of stock that typically does not carry the voting rights of common stock, but does carry a stated dividend rate that is paid before any payment of common stock dividends by the same company. In the event of a company's liquidation, owners of preferred stock have a prior claim to assets over common stockowners. Contrast with common stock.
premature distributions	Withdrawals taken from an annuity before the contract owner reaches age 59½.
premium	(1) In insurance, a specified amount of money an insurer charges in exchange for the coverage provided by an insurance policy or annuity contract. (2) In reference to bond prices, the amount by which a bond's current market price exceeds its par value.
premium bond	A bond that has a market price that is greater than the bond's principal or par value. Contrast with discount bond.
premium payment mode	For insurance policies, the frequency—monthly, quarterly, semiannual, or annually—at which renewal premiums are payable.
premium rate	The amount an insurer charges per unit of insurance coverage. For example, the premium rate may be 30 cents per $1,000 of insurance coverage.
premium receipt	A written acknowledgment that an insurer has received the initial premium submitted with an application for insurance. A premium receipt typically provides the proposed insured with some type of temporary insurance coverage while the application for insurance is being underwritten. See also temporary insurance agreement.
premium reduction dividend option	A policy dividend option under which the insurer applies policy dividends toward the payment of renewal premiums.
premium refund	See experience refund.
premium tax	Type of tax levied by a government on an insurer's premium income.
premium-based reciprocity	In reinsurance, a type of reciprocal arrangement involving the exchange of blocks of reinsurance business representing approximately the same amount of gross premium on the reinsured risks. See also reciprocal arrangement. Contrast with results-based reciprocity.
premiums paid in advance	The liability an insurer records when a policyowner pays a premium in one accounting period for coverage that does not begin until the next policy anniversary date. Also known as advance premiums.
pre-need funeral insurance	A form of insurance that provides funds to pay for the insured's funeral and burial, which have been arranged while the insured is living. Also known as pre-need insurance.
pre-need insurance	See pre-need funeral insurance.
pre-notice	A notice that must be given to an insurance applicant in the United States by an insurer that discloses clearly and adequately to the applicant that the insurer may use a consumer reporting agency to compile a consumer report on the insurance applicant. See also consumer credit report and post-notice.
preplacement	The process by which a reinsurer (1) reviews a direct writer's request for coverage, (2) establishes appropriate records and reserves capacity for the case, and (3) as necessary, follows up on reservations for capacity that have been inactive for a specified period of time.
prescription drug coverage	Medical expense insurance coverage that provides benefits for the purchase of drugs and medicines that are prescribed by a physician and are not available over-the-counter.
present value (PV)	The amount that, if invested at a specified interest rate on a specified date, would grow to equal a specified future amount. Contrast with future value.
present value interest factor (PVIF)	The present value of $1.00 at a given rate of interest for a stated number of periods. A present value interest factors table shows the present value of $1.00 for various interest rates and a number of discounting periods. Contrast with future value interest factor.
present value interest factor for an annuity (PVIFA)	The interest factor that represents the present value of a $1.00 annuity at a given rate of interest for a stated number of periods.
presumptive death certificate	A court-issued document stating that a person is presumed to be dead.
presumptive disability	According to the terms of some disability income policies, a stated condition that if present, automatically causes the insured to be considered totally disabled and thus eligible to receive disability income benefits. Examples of presumptive disabilities include total and permanent blindness, loss of the use of any two limbs, and loss of speech or hearing.
pretext interview	An interview in which one person attempts to gain information from another person by refusing to identify himself or herself, pretending to be someone else, or misrepresenting the purpose of the interview. In the United States, the National Association of Insurance Commissioners (NAIC) Model Privacy Act prohibits insurers or insurance sales agents from conducting pretext interviews.
pricing risk	For an insurer, the risk that the insurer's experience with product expenses or benefits will differ significantly from the assumptions used in the product's financial design, causing the insurer to lose money on its products. One of four officially recognized C risks. Also known as C-2 risk.
primary beneficiary	The party designated to receive a life insurance policy's proceeds following the death of the insured. Also known as the first beneficiary. See also contingent beneficiary.
primary care physician (PCP)	In a managed health care plan, a physician, usually a general or family practitioner, who serves as the insured's personal physician and contact with the managed care plan.
principal	(1) In an agency relationship, the party that authorizes another party, the agent, to act on the principal's behalf in contractual dealings with third parties. (2) In investments, a sum of money originally invested; the amount of money upon which interest is calculated. (3) For an annuity, the amount of money the purchaser pays as premiums. See also par value.
principles-based approach (PBA)	An approach to reserve valuation in which the valuation actuary applies stochastic (probabilistic) analysis to develop probabilities for various outcomes and then applies professional judgment to set appropriate values. Contrast with rules-based approach.
prior approval requirement	In the United States, a type of policy form filing requirement imposed by the states on individual and group life insurance, health insurance, and annuity policy forms; stipulates that a policy form must be filed with, and approved by, the state insurance department before the form is used in the state.
private placement	A method of issuing securities in which the issuer sells the security directly to a limited number of investors, typically institutional investors. Contrast with a public offering.
privileged information	For insurance regulatory purposes, information about an individual that relates to either an insurance claim or a civil or criminal proceeding.
probability	The likelihood that a given event will occur in the future.
probationary period	In group insurance, the length of time—typically, from one to six months—that a new group member must wait before becoming eligible to enroll in a group insurance plan, as specified in the group master contract. Also called a waiting period.
proceeds	The amount of money that an insurance company is obligated to pay for the settlement of an insurance policy. Proceeds may be a death benefit or the policy's cash or accumulated value. See also death benefit and cash value.
producer	In insurance sales, any individual who is licensed to sell insurance products. Producers include agents, bank-affiliated sales personnel, and brokers. See agent. See also broker.
Producer Database (PDB)	An electronic database in the United States that was developed by the National Association of Insurance Commissioners (NAIC) and is accessible to all participating state insurance departments. The database contains licensing, appointment, and disciplinary information about producers across the country.
producer group	An organization of independent insurance producers that negotiates compensation, product, and service agreements with insurance companies.
producer of record	From an insurer's perspective, the agent, broker, or other type of producer currently providing service to a policyowner or annuity contract owner.
product portfolio	See liability portfolio.
professional association	An association of individuals who share a common occupation, such as an association of medical doctors, attorneys, or engineers. A professional association generally is considered to be an eligible group for group insurance purposes.
professional development	The process of enhancing knowledge, skills, and behaviors through continuous education, training, and participation in professional organizations.
professional liability insurance	Insurance covering individuals who provide professional services, such as physicians and lawyers, from losses they incur as a result of being held responsible for losses of their clients.
profit	The excess of revenues over expenses during a defined period of time, which is a measure of a company's financial success during a relatively short period of time. Also known as net income. Contrast with loss.
profit center	A line of business that (1) is evaluated on its profitability, (2) is responsible for its own revenues and expenses, and (3) makes many of its own decisions regarding operations. See also strategic business unit (SBU).
profit sharing plan	A retirement savings plan that is funded primarily by cash contributions payable from the employer's profits.
profitability	The overall degree of success a business has in generating positive returns for its owners, including the company's ability to generate profits and increase the value of the company.
profitability analysis	The process of determining which company operations are losing or making money by comparing the sales an activity generates with the expenses incurred to generate those sales.
projection method	A method of modifying tabular mortality that involves multiplying the tabular mortality rates by a chosen percentage. See also setback method.
property insurance	Insurance that provides protection against financial loss from property damage and theft.
property/casualty (P&C) insurance company	An insurance company that insures against financial loss from property damage and theft by providing property insurance, such as homeowners insurance and automobile insurance, and from being held responsible for harming others or their property by providing liability insurance. Also known as a nonlife insurance company and general insurance company.
proportional reinsurance	A type of reinsurance under which the direct writer and the reinsurer agree to share premiums and claim obligations according to a specified amount or percentage.
proposal for insurance	In group insurance, a document that details the specifications of a group insurance plan proposed by an insurer for a group prospect, and that allows the prospect to compare the costs and benefits of the plan to those offered by other insurers.
proposed group	See group prospect.
proposed insured	The term used during the underwriting process to refer to the person whose life, health, or income is to be covered by an insurance policy.
proprietary mortality table	A type of mortality table that a single insurance company develops for internal use, based largely on its experience with its own customers. Contrast with published mortality table.
prospect	A potential customer for an insurer's products or services.
prospecting	The process a sales intermediary uses to identify, contact, and qualify potential customers.
prospective reserve valuation method	For insurance companies, a method of computing a value for a reserve liability by looking at a contract's expected future cash flows—its premiums and payments on behalf of contract owners. Contrast with retrospective reserve valuation method.
prospectus	A written document describing specific aspects of a security being offered for sale; often includes fund expenses and fees, and past product performance.
proximate cause	For an accidental death or accidental disability insurance claim, the event that directly caused the death or disability, or the event that led to an unbroken chain of events resulting in death or disability.
public mortality table	See published mortality table.
public offering	A method of issuing securities in which the security issuer makes a new security available for sale to the public. Contrast with private placement.
published mortality table	A type of mortality table that is based on the mortality of the public at large or a broad cross- section of the population and that is made available to the general public through printed documents and electronic sources. Also known as public mortality table. Contrast with proprietary mortality table.
punitive damages	Monetary awards which are in addition to compensatory damages when a defendant's conduct meets the jurisdiction's standards for behavior that is so egregious as to warrant such damages. See also compensatory damages.
pure risk	A risk that involves no possibility of gain; either a loss occurs or no loss occurs.
PV	See present value.
PVIF	See present value interest factor.
PVIFA	See present value interest factor for an annuity.

QPP	See Quebec Pension Plan.
qualified annuity	An annuity that qualifies to receive favorable tax treatment and is purchased to either fund or distribute funds from a qualified retirement plan in the United States.
qualified beneficiary	In the United States under the Consolidated Omnibus Budget Reconciliation Act, a specified individual who has the right to continue group medical expense insurance coverage for a limited time following a qualifying event without providing evidence of insurability.
qualified retirement plan	A group retirement plan that receives favorable federal income tax treatment in the United States because it meets specified requirements imposed by the federal tax laws and the Employee Retirement Income Security Act. See also registered pension plan.
qualifying	The process by which a producer screens prospects to separate those with real buying potential from those with poor potential.
qualifying event	In the United States under the Consolidated Omnibus Budget Reconciliation Act, a specified situation in which a person whose group medical expense insurance would otherwise terminate is allowed to continue the group insurance coverage for a limited time.
quality business	See well-written business.
quality rating	An alphabetical grade or rating assigned to an insurance company by a rating agency to indicate the level of the insurance company's financial strength, its ability to pay its obligations to customers, or its ability to pay its obligations to creditors.
Quebec Pension Plan (QPP)	In the Canadian province of Quebec, a compulsory. contributory public insurance plan that provides wage earners in Québec and their families with basic financial protection in the event of retirement, death or disability.
quick liquidity ratio	For insurers, the ratio of an insurer's liquid assets to its contractual reserves. See also ratio.
quick ratio	One way of determining a company's ability to liquidate debt immediately, this ratio is calculated by dividing a company's most liquid current assets by the company's current liabilities. Also known as acid-test ratio.
quota share	Generally, an insurance company's percentage share of a reinsurance transaction. Also known as a subscription.

RAA option	See retained asset account option.
ratchet method	See annual reset method.
rate of return	Investment earnings (or losses) over a specified period of time expressed as a percentage relative to the principal.
rated policy	An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with a premium rate that is higher than the rate for a standard policy.
rating	The general process used to establish a premium rate for an insurance policy. In common underwriting usage, "rating a policy" refers to charging a higher-than-standard premium rate for an insurance policy.
rating agency	An organization, owned independently of any insurer or government body, that evaluates the financial condition of insurers and provides that information to potential customers and investors of insurance companies.
rating agency capital	The minimum standard of capital that an insurer must maintain in order to receive a favorable quality rating from a specific rating agency. Contrast with regulatory capital and economic capital.
rating experience	The proportional assignment of new business cases to the company's available rate classes.
ratio	A comparison of two numeric values that results in a measurement expressed as a percentage or a fraction.
RBC requirements	See risk-based capital requirements.
readability requirements	A regulatory standard that limits sentence length, word length, and the amount of technical and legal language allowed in an insurance contract so that people who are not legal experts can understand the contract.
real estate	See real property.
real property	Land or anything attached to the land. Also known as real estate. Contrast with personal property.
realized gain (or loss)	The difference between an asset's net sales proceeds and its purchase price. Contrast with unrealized gain (loss).
real-time underwriting	A process used to underwrite applications for term life insurance that results in a certain percentage of applications being approved within minutes or hours after the application is received. The process relies on automated underwriting systems and information from the insurance application as well as online pharmaceutical databases. Also known as instant-issue underwriting.
rebating	A sales practice in which an insurance producer offers a prospect an inducement, such as a cash payment, to purchase a life insurance policy or an annuity contract, and the inducement is not offered to all applicants in similar situations and is not stated in the policy itself. Rebating is prohibited in most states in the United States.
recapture	In reinsurance, the process by which a direct writer takes back some or all ceded business from a reinsurer.
receiver	In the United States, the insurance commissioner, or someone acting on the commissioner's behalf, who is responsible for formulating a plan to distribute an impaired insurer's assets and for making sure that the insurer's obligations to customers are fulfilled to the greatest extent possible. Also known as a conservator.
receivership	In the United States, a legal condition under which a state insurance commissioner, acting for a state court, takes control of and administers a financially impaired insurer's assets and liabilities. A receivership can have two possible outcomes: rehabilitation or liquidation. Also known as conservatorship. See also rehabilitation and liquidation.
reciprocal arrangement	A two-way reinsurance arrangement wherein two insurance companies cede business to each other and assume risk from each other. Also known as reciprocity. See also premium-based reciprocity and results-based reciprocity.
reciprocity	See reciprocal arrangement.
recording method of beneficiary change	A method of changing the beneficiary of a life insurance policy under which the policyowner must provide the insurer with a written and signed notification of the beneficiary change. Contrast with endorsement method of beneficiary change.
records inspection provision	A reinsurance treaty provision that states the rights of each party to audit the other party's records and documents relating to the reinsurance provided under the treaty.
recurrent disability	A disability that results from the same cause as an original disability and that reappears after the original disability ends and after the insured returns to work.
reduced paid-up insurance nonforfeiture option	One of several nonforfeiture options included in cash value life insurance policies that allows the owner of a policy with a cash value to discontinue premium payments and to use the policy's net cash surrender value to purchase paid-up insurance of the same plan as the original policy.
reduction	An insurance policy provision that reduces the amount of the benefit payable for a specified loss when specified conditions are met. See also exclusion and limitation.
reexamination	In the United States, a regulatory examination of an insurance company that is conducted as a follow-up to a comprehensive or target market conduct examination and that is designed to determine whether the insurer has complied with recommendations or directives contained in a previous examination report.
referral	See referred lead.
referred lead	In sales, the name of a well-qualified prospect that a client has given to a producer. Also known as a referral.
refund annuity	See life annuity with refund.
registered investment advisor (RIA)	See independent financial advisor.
registered pension plan (RPP)	In Canada, a private retirement plan that meets the legal requirements to receive favorable federal income tax treatment. See also qualified retirement plan.
registered principal	An officer, manager, and/or director of a Financial Industry Regulatory Authority (FINRA) member company who is involved in the day-to-day operation of a securities business, supervises registered representatives, and has satisfied FINRA registration requirements regarding the sale of securities.
registered representative	A person who is a business associate of a Financial Industry Regulatory Authority (FINRA) member, engages in the securities business on behalf of the member by soliciting the sale of securities or training securities salespeople, and has passed a specified examination administered by FINRA.
registered retirement savings plan (RRSP)	In Canada, a retirement savings plan that is similar to an individual retirement arrangement in the United States and that allows individuals or their spouses (not employers) with earned income to deposit a specified portion of their pre-tax income into a tax-deferred savings arrangement for the purpose of accumulating money for retirement.
registration statement	In the United States, a document filed in conjunction with Securities and Exchange Commission registration of a security that contains detailed information about the security and the issuer of that security, including specified financial statements. Insurers are required to file a registration statement for their variable insurance and annuity products.
regular IRA	See traditional IRA.
Regulation 60	In the United States, a New York state insurance regulation designed to protect customers against replacements of an insurance or annuity contract when it is not in a customer's best interests. Insurers and producers are required to disclose specific relevant information to the customer prior to replacing any existing insurance or annuity contract.
regulatory capital	The legal minimum standard of capital that an insurer must maintain in order to be considered solvent by the regulatory authorities. Contrast with rating agency capital and economic capital.
Regulatory Information Retrieval System (RIRS).	In the United States, a database maintained by the National Association of Insurance Commissioners that contains information on insurance companies and individuals who have been the subjects of regulatory or disciplinary actions.
rehabilitation	(1) In disability income insurance, the process of helping a disabled person return to work, either at her own occupation or at another occupation if she is unable to perform the duties of her own occupation. (2) In the United States in an insurance receivership, a condition wherein the insurer regains financial stability and thus continues to exist after the receivership. See also receivership. Contrast with liquidation.
reimbursement benefits	See indemnity benefits.
reinstatement	The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or has been continued under the extended term or reduced paid-up insurance nonforfeiture option.
reinsurance	Insurance that one insurance company—the direct writer—obtains from another insurance company—the reinsurer—on risks associated with insurance policies issued by the direct writer.
reinsurance account executive	See reinsurance marketing officer.
reinsurance administration	All the day-to-day activities conducted by the direct writer and the reinsurer to process and manage each risk that the direct writer cedes automatically or submits for facultative or facultative-obligatory consideration.
reinsurance agreement	See reinsurance treaty.
reinsurance allowance	See allowance.
reinsurance commission	See allowance.
reinsurance company	See reinsurer.
reinsurance effective date	The date on which the reinsurance coverage for a specific risk takes effect.
reinsurance intermediary	A third party who is not employed by a licensed insurer or reinsurer, but who acts on behalf of a direct writer or reinsurer to place reinsurance. In the United States, laws and regulations recognize two types of intermediaries, the reinsurance intermediary—broker and the reinsurance intermediary—manager.
reinsurance intermediary—broker	Any person, firm, or corporation that solicits, negotiates, or places reinsurance cessions or retrocessions on behalf of a direct writer but that is not authorized to enter into a binding reinsurance contract on behalf of the direct writer. Contrast with reinsurance intermediary--manager.
reinsurance intermediary—manager	Any party that acts as an agent of a reinsurer and either has authority to bind the reinsurer to a reinsurance contract or manages all or part of the reinsurer's assumed business. Contrast with reinsurance intermediary-- broker.
reinsurance marketing officer	A reinsurer's employee who sells reinsurance and coordinates the marketing process for the reinsurer. Also known as a reinsurance account executive.
reinsurance pool	An arrangement in which two or more reinsurers agree to accept a share of reinsurance on a product or a group of products.
reinsurance premium	In indemnity reinsurance, the periodic payment made by a direct writer to a reinsurer as compensation for indemnity reinsurance coverage.
reinsurance recoverable	Reinsurance benefit amount due to the direct writer or owed by the reinsurer.
reinsurance slip	See letter of intent.
reinsurance treaty	A document that contains the terms of the reinsurance business to be conducted, including the nature of the risk transfer, reinsurance information procedures, information exchanges, and the rights and duties of each party under the arrangement. Reinsurance treaties typically document a type of reinsurance cession known as automatic reinsurance. Also known as a reinsurance agreement.
reinsurer	An insurer that provides reinsurance coverage by accepting, or assuming, insurance risk from a direct writer. Also known as a reinsurance company or an assuming company. Contrast with direct writer.
release	A written document that a claimant to life insurance policy proceeds must sign in exchange for the policy proceeds; the document states that the claimant has received full payment of the claim and that he gives up any and all claims against the insurer as a result of the policy.
renewable term insurance policy	A term life insurance policy that gives the policyowner the option to continue the coverage at the end of the specified term without presenting evidence of insurability, although typically at a higher premium because the premium amount is based on the insured's attained age.
renewal commission	A sales commission paid to an insurance producer on a policy the producer sold that remains in force. The renewal commission rate is equal to a stated percentage of each premium paid for a specified number of years after the first policy year. The renewal commission rate is generally lower than the first-year commission rate. See also commission. Contrast with first-year commission.
renewal expenses	See maintenance expenses.
renewal premium	An insurance policy premium payable after the initial premium. Contrast with initial premium.
renewal underwriting	For group insurance plans, a type of underwriting in which the underwriter reviews all the risk assessment factors considered when the group was originally underwritten and determines whether the characteristics of the group have changed in ways that affect the degree of risk the group presents. Renewal underwriting sets the premium rate for the next policy term.
replacement	Any transaction in which an individual life insurance policy or annuity contract is to be purchased and the producer or insurer knows or should know that, as a result of the transaction, an existing life insurance policy or annuity contract will be terminated or reduced in value. See also external replacement and internal replacement.
replacement cost insurance	A type of homeowners' insurance that pays the policyowner the full cost of replacing the lost or damaged property, subject to a maximum amount.
Replacement of Life Insurance and Annuities Model Regulation	In the United States, a National Association of Insurance Commissioners model regulation that applies to certain life insurance policies and annuity contracts that are being replaced and that is designed to ensure that insurers and producers follow certain procedures and provide consumers with fair and accurate information about policies and contracts so consumers can make replacement decisions that are in their own best interests.
representation	A statement made by a contracting party that will invalidate the contract if the statement is not substantially true and the statement induced the other party to enter into the contract. Contrast with warranty.
request for coverage	Under facultative and fac-ob reinsurance treaties, the document that a direct writer uses to request reinsurance coverage on a particular insured or group of insureds. Also known as a facultative application.
request for proposal (RFP)	In group insurance, a document that provides detailed information about the requested coverage and requests a bid from the insurer for providing that coverage.
required rate of return	For a given investment, the sum of the risk-free rate of return and the risk premium. See also risk-free rate of return and risk premium.
required reserve	See contractual reserve.
rescission	The equitable remedy available to an insurer that discovers that it has issued a policy based on material misrepresentation in which the insurer voids the contract from the beginning and the parties are returned to the positions they would have occupied had no contract been created.
reserve credit	In the United States, an accounting entry used by a direct writer to record a reduction of reserves, due to the use of reinsurance, in its Annual Statement.
reserve destrengthening	For an insurance company, the act of decreasing a reserve liability amount, which results in an increase in the insurer's capital or surplus. Contrast with reserve strengthening.
reserve listing	A reinsurance report that shows all policies reinsured and the reserve held for each policy.
reserve strengthening	For an insurance company, the act of increasing a reserve liability amount, which results in a decrease in the insurer's capital or surplus. Contrast with reserve destrengthening.
reserve valuation	A formal actuarial process of establishing a value for an insurer's reserves.
reserved capacity	The portion of a reinsurer's capacity that the reinsurer sets aside to provide coverage of the risk under the anticipated new business.
reserves	For an insurer, liabilities that represent the amounts of money that the insurer expects to need to meet future business obligations. Although many different types of reserves exist, insurers typically use the term to refer to contractual reserves.
resident producer	In the United States, an insurance producer who resides or maintains her principal place of business within a particular state and is issued a resident license by the state licensing authority.
residential mortgage	A loan secured by a single-family home and usually having a term to maturity of either 15 or 30 years.
resisted claim	See disputed claim.
respite care	In long-term care (LTC) insurance, temporary care provided for an insured who has been receiving home health care so that the primary caregiver in the home can have a break from the day-to-day care of the insured.
restoration of benefits provision	A provision in a long-term care (LTC) insurance policy that allows an insured person who has used a portion of benefits available under the LTC policy to regain a full benefit period after a stated period of time has passed following the delivery of the long-term care.
restructured mortgages	Mortgage agreements that were at one time overdue and in danger of foreclosure, but which have been renegotiated as to interest rate, term to maturity, and principal due.
results-based reciprocity	In reinsurance, a type of reciprocal arrangement involving the exchange of blocks of reinsurance business representing approximately the same projected monetary amount of claims experience on the reinsured risks. See also reciprocal arrangement. Contrast with premium-based reciprocity.
retained asset account (RAA) option	A life insurance policy settlement option that allows an insurer to pay a life insurance policy's proceeds into an interest-bearing account in the payee's name; the payee can then withdraw all or part of the proceeds at any time. See also settlement options.
retained earnings	The profits that a company holds to reinvest in the company instead of paying the money out in dividends to its stockholders. Compare to surplus.
retention	See persistency.
retention limit	A specified maximum amount of insurance per life that an insurer is willing to carry at its own risk without transferring some of the risk to a reinsurer.
retention limit corridor	A monetary amount greater than the company's retention limit that a direct writer is willing to retain to avoid ceding small amounts of coverage.
retention schedule	A table that presents all of an insurer's retention limits, organized by applicable categories such as product, product line, issue age, and underwriting rating. Also known as a table of retention limits.
retro pool	See retrocession pool.
retrocession	(1) A transaction by which a reinsurer transfers excess risk to another reinsurer, known as the retrocessionaire. (2) The unit of insurance that a reinsurance company cedes to a retrocessionaire. (3) The document used to record the transfer of risk from a reinsurer to a retrocessionaire.
retrocession claim file	A file that contains all the information relevant to a claim, plus information about the retrocession on the case, to use when the reinsurer notifies its retrocessionaires of the claim.
retrocession pool	A group of two or more professional retrocessionaires or reinsurers that jointly reinsure retroceded risks. Also known as a retro pool.
retrocessionaire	A reinsurer that accepts risks from—and provides reinsurance to—another reinsurer.
retrospective rating arrangement	In group health insurance, a premium payment arrangement under which the insurer agrees to charge the group policyholder a lower monthly premium than it would normally charge based on the group's prior claim experience and the policyholder agrees to pay an additional amount if, at the end of the policy year, the group's claim experience has been unfavorable.
retrospective reserve valuation method	For insurance companies, a method of computing a value for a reserve liability by looking at a contract's past cash flows—its past premiums and benefits. Contrast with prospective reserve valuation method.
return	Any gain or loss that results from taking a risk.
return of premium (ROP) term insurance	A form of term life insurance that provides a death benefit if the insured dies during the policy term and promises a return of all or a portion of the premiums paid for the policy if the insured does not die during the policy term.
return on revenue ratio	See net profit margin.
revenue	An amount that a company earns from its business operations. Contrast with expense.
reverse mortgage	An arrangement in which a homeowner, usually aged 62 or older, who continues to live in and own the home, borrows against the equity in his home and receives the borrowed amount in cash via one or a combination of payment options offered by the lender.
revocable beneficiary	A life insurance policy beneficiary whose designation as beneficiary can be cancelled or reduced by the policyowner at any time before the insured's death. Contrast with irrevocable beneficiary.
revolving credit	See open-end credit.
RFP	See request for proposal.
RIA	Registered investment advisor. See independent financial advisor.
rider	See policy rider.
right of recommendation	In a reinsurance arrangement, the right of the reinsurer to review a claim and offer its opinion to the direct writer on whether to pay the claim.
right of revocation	The life insurance policyowner's right to change the beneficiary designation.
RIRS	See Regulatory Information Retrieval System.
risk	The chance or possibility of an unexpected result, either a gain or a loss.
risk assessment	The process of ascertaining the degree of risk represented by each proposed insured person or group according to a range of criteria that the insurer established when it designed the insurance product.
risk class	In life insurance underwriting, a grouping of insureds that represent a similar level of risk to an insurance company. See also declined risk class, preferred risk class, standard risk class, and substandard risk class.
risk factor	For underwriting purposes, any medical, personal, or financial characteristic pertaining to the proposed insured that increases the likelihood that the person will suffer a covered loss. See also medical risk factor, personal risk factor, and financial risk factor.
risk management	The process by which individuals and businesses identify and assess the risks they face and take measures to eliminate or reduce their exposure to those risks.
risk premium	The compensation that investors require for taking on the risk associated with a specific investment. See also risk-free rate of return and required rate of return.
risk tolerance	The degree to which a person is willing to accept risk.
risk-based capital (RBC) requirements	In the United States, a set of capital requirements developed by the National Association of Insurance Commissioners to determine the minimum capital level of an insurer, based on the insurer's size and risk profile, as identified by a specific risk-weighted formula for four classifications of risks, called C risks (contingency risks). See also C-1 risk (asset risk), C-2 risk (pricing risk), C-3 risk (interest-rate risk), and C-4 risk (general management risk).
risk-free rate of return	The return on a risk-free investment—that is the least risky investment opportunity available. See also required rate of return and risk premium.
risk-return tradeoff	The interplay between risk and return, according to which—in general—the greater the risk associated with an investment, the greater the expected return on the investment; and conversely—and in general, the lower the risk associated with an investment, the lower the expected return.
risk-taking capability	See underwriting capacity.
rolling budget	A type of budget that allows a company to continually maintain projections for a specified time period into the future. A company that uses a six-month rolling budget would update the budget at the end of each month so that budget projections always apply to the coming six-month period. Also known as a continuous budget. Contrast with period budget.
rollover	A tax-free movement of cash or other assets disbursed from one retirement plan into another retirement plan. These funds do not pass through the hands of the owner and thus do not incur any tax liability for the owner.
ROP term insurance	See return of premium term insurance.
Roth IRA	In the United States, a type of individual retirement arrangement that permits people within certain income limits to make nondeductible annual contributions and to withdraw money on a tax-free basis at retirement age. A Roth IRA can be either an individual retirement account or an individual retirement annuity. Contrast with traditional IRA.
routine checkup	In insurance underwriting, a visit to a physician that was not motivated by a symptom or health problem.
RPP	See registered pension plan.
RRSP	See registered retirement savings plan.
rules-based approach	An approach to reserve valuation in which a valuation actuary applies deterministic analysis and a required set of rules to determine the reserves. Contrast with principles-based approach.

S&L	See savings and loan association.
SAD	See Special Activities Database.
salaried sales agent	See salaried sales representative.
salaried sales representative	A company employee who is paid a salary for making insurance sales and providing sales support. Also known as a salaried sales agent.
salary continuation plan	A short-term disability income insurance plan that provides 100 percent of an insured's salary, beginning on the first day of the insured's absence from work due to sickness or injury and continuing for some specified time.
sale-and-leaseback transaction	A method of investing in real estate in which the owner of a building sells the real estate to an investor but immediately leases back the real estate from the investor.
sales aid	Promotional material, such as a brochure or an illustration, used in conjunction with a sales presentation to help explain complex products.
sales commission	See commission.
sales presentation	In insurance sales, the promotional message a producer delivers to a prospect to explain the product or products recommended in a proposal, stimulate the prospect's interest in those products, and motivate the prospect to purchase the products.
sales promotion	A company-sponsored program that is designed to motivate new sales activity and uses incentive programs, that are usually monetary, to encourage producers to sell an insurance product. Sales promotions are occasionally used to encourage insurance customers to purchase a product, although customer sales promotions are not monetary.
sales revenue	The total dollar volume of sales, which for insurance is calculated by multiplying the sales volume by the average contract size.
sales volume	The number of units of product sold.
saliva test	See oral specimen test.
salvage value	The residual value or selling price of an asset at the end of its useful life.
SAP	See statutory accounting practices.
Sarbanes-Oxley Act (SOX)	A U.S. federal law that requires public companies to take specific precautions related to corporate governance, effective internal controls, and preventing and detecting fraudulent behavior on the part of management and the company's external auditors. Also known as Sarb-Ox.
Sarb-Ox	See Sarbanes-Oxley Act.
SAS 70	An auditing standard developed and maintained for service organizations by the American Institute of Certified Public Accountants (AICPA). Also known as Statement on Auditing Standards No. 70, Service Organizations.
SAS 70 Service Auditor's Report (SAR)	Under SAS 70 standards, a type of audit report that evaluates the effectiveness of internal control over financial reporting as required under SOX. See also SAS 70 and Sarbanes-Oxley Act.
savings and loan association (S&L)	A depository institution that principally pools the savings of people and makes residential mortgage loans. Also known as a thrift.
savings bank life insurance (SBLI)	In the United States, inexpensive life insurance coverage sold by authorized savings banks to people who live or work in the state in which the insurance is sold. Savings bank life insurance is permitted in three states-- Massachusetts, New York, and Connecticut.
savings incentive match plan for employees (SIMPLE) 401(k)	In the United States, a special arrangement whereby an employer with 100 or fewer employees can establish a simplified 401(k) retirement savings plan for eligible employees (including self-employed individuals) that functions in much the same way as a regular 401(k) plan--both the employer and the employee can make contributions to the plan up to a specified maximum. Employer contributions are deductible from the employer's current taxable income, employee contributions are on a pre-tax basis, and all earned income accumulates on a tax-deferred basis. Withdrawals are taxable as income.
savings incentive match plan for employees (SIMPLE) IRA	In the United States, a written salary reduction agreement between an employer with 100 or fewer employees and its employees that allows eligible employees (including self-employed individuals) to choose to reduce compensation by a certain percentage each pay period and have the employer contribute the amount of the salary reduction to a SIMPLE IRA on the employee's behalf. The employer must also make either matching contributions or nonelective contributions. All contributions must be fully vested in the employee. Employer contributions are deductible from the employer's current taxable income, employee contributions are on a pre-tax basis, and all earned income accumulates on a tax-deferred basis. Withdrawals are taxable as income.
savings plan	A retirement plan to which a plan sponsor may make contributions on behalf of a plan participant if the participant makes contributions to the plan.
SBLI	See savings bank life insurance.
SBU	See strategic business unit.
schedule	A part of the reinsurance treaty that addresses variable elements of the agreement, such as the plans covered, retention limits, binding limits, reinsurance premium rates, and allowances. Also known as an exhibit or a condition.
schedule of benefits	(1) Under a group insurance plan, a table that specifies the amount of coverage provided for each class of insureds. (2) For medical expense claim purposes, a listing of medical treatments and the maximum benefit amounts an insurer will pay for each treatment.
scheduled net debt	For purposes of determining the benefit payable under a consumer credit insurance policy, the lump-sum amount needed to pay off the debt on a given date according to the credit agreement's repayment schedule.
screening	In the product development process, a weeding out process designed to evaluate new product ideas quickly and inexpensively in order to select those ideas that warrant further investigation.
seasoning requirement	In the United States, a licensing requirement that many states impose on foreign and alien insurers, which are eligible to receive a certificate of authority only if they have been actively engaged in the business of insurance for a specified time—usually years. See also alien corporation and foreign corporation.
SEC	See Securities and Exchange Commission.
second insured rider	A supplemental life insurance policy benefit that provides term insurance coverage on the life of a person other than the policy's insured. Also known as an optional insured rider, other insured rider, and additional insured rider.
second mortgage	A mortgage loan secured by the borrower's equity in real estate that is already collateral for a first mortgage. See also first mortgage.
secondary beneficiary	See contingent beneficiary.
second-to-die life insurance	See last survivor life insurance.
Section 1035 Exchange	In the United States, a tax-free exchange of one life insurance policy or annuity contract for another policy or contract covering the same person that is performed in accordance with Section 1035 of the Internal Revenue Code.
secured bond	A bond in which the issuer pledges something of value—collateral—to guarantee the safety of the bondholder's investment. Contrast with debenture.
Securities and Exchange Commission (SEC)	In the United States, a federal government agency that regulates the investment industry.
securities broker	An individual, corporation, or other legal entity that is engaged in the business of buying and selling securities for the accounts of others.
securities dealer	An individual, corporation, or other legal entity that is engaged in the business of buying and selling securities for its own account.
securities exchange	See stock exchange.
security	A financial asset that represents either (1) an obligation of indebtedness owed by a business, a government, or an agency, which is known as a debt security or (2) an ownership interest, which is known as an equity security.
segmentation method	The approach an insurer uses for dividing a general account into portfolio segments to support more effective management of the relationship between specific assets and associated liabilities. Also known as portfolio segmentation method.
segregated account	See separate account.
segregated fund	See separate account.
segregation of duties	An internal control that requires an employer to design jobs so that job tasks will not place an employee in a position to conceal errors or irregularities in the normal course of his or her employment. Also known as dual control.
select and ultimate mortality table	A type of mortality table that combines coordinated sets of select mortality rates and ultimate mortality rates. See also select mortality table and ultimate mortality table.
select mortality table	A type of mortality table that shows the expected mortality rates of people who have recently been underwritten for insurance policies. See also select and ultimate mortality table. Contrast with ultimate mortality table.
selection against the insurer	See antiselection.
selection of risk	See underwriting.
self administration	A method of reinsurance record administration in which the direct writer maintains detailed records for each ceded policy and sends the reinsurer periodic reports describing the individual risks ceded and reinsurance premiums due for each policy.
self-administered group plan	A group insurance plan for which the group policyholder is responsible for handling the administrative and recordkeeping aspects of the plan. Contrast with insurer-administered group plan.
self-insurance	A risk-management technique by which a person or business accepts financial responsibility for losses associated with specific risks.
self-insured group plan	A plan for which the group sponsor rather than an insurance company is financially responsible for the claims incurred by group members.
self-insured retention limit	In reinsurance, a stated maximum monetary amount of risk that a self-insured entity will carry at its own risk.
self-regulatory organization (SRO)	A nongovernmental organization that exercises regulatory authority over an industry or profession.
SEP plan	See simplified employee pension plan.
separate account	Traditionally, an asset account designated for supporting an insurance company's financial products for which the performance is linked to investment results. The customer, not the company, directly bears the investment risk for assets held in these accounts. Also known as a segregated fund, segregated account, unit trust, and unit- linked portfolio. Contrast with general account.
service fee	Compensation paid to an insurance sales producer equal to a small percentage of the premiums payable after the renewal commissions have ceased. See administrative charge.
service recovery	The efforts an organization makes to fully resolve the problem that caused a customer's dissatisfaction and win back the customer's goodwill.
setback method	A method of modifying tabular mortality rates that consists of showing future decreases in mortality for people of a given age by using the tabular mortality rate for a younger age. See also projection method.
settlement agreement	A contractual agreement between a life insurance policyowner and an insurer governing the rights and obligations of the parties after the death of the insured. See also supplementary contract.
settlement options	Choices given to the owner or beneficiary of a life insurance policy regarding the method by which the insurer will pay the policy's proceeds when the policyowner does not receive the benefits in one single payment. Typically, the owner can elect to (1) have the proceeds paid into an interest-bearing account, (2) have the proceeds paid in a series of installments for a pre-selected period, (3) have the proceeds paid in a pre-selected amount in a series of installments for as long as the proceeds last, or (4) have the insurer tie payment of the proceeds to the life expectancy of a named individual through a life annuity. The term "settlement options" is more frequently associated with life insurance policies, while the term "payout options" is more frequently associated with annuities. Also known as optional modes of settlement.
sex-distinct mortality table	A type of mortality table that shows different mortality rates for males and females. Also known as a gender-based mortality table. Contrast with a unisex mortality table.
share	A unit of ownership of a stock corporation. Also known as a share of stock.
share of stock	See share.
shareholder	See stockholder.
Shopper's Guide to Long-Term Care Insurance	In the United States, a National Association of Insurance Commissioners publication designed to provide consumers with information about the long-term care insurance coverages that are available and to help consumers make informed purchase decisions.
short-term assets	See current assets.
short-term group disability income coverage	Group disability income coverage that provides a maximum benefit period of one year or less; such coverage commonly specifies a maximum benefit period of 13, 26, or 39 weeks. Contrast with long-term group disability income coverage.
short-term individual disability income coverage	A type of disability income coverage that provides an individual with disability income benefits for a maximum benefit period of from one to five years. Contrast with long-term individual disability income coverage.
short-term liabilities	See current liabilities.
SIFI	See systemically important financial institution.
SIMPLE 401(k)	See savings incentive match plan for employees 401(k).
simple interest	Interest that is earned on the original principal amount of money only. Contrast with compound interest.
SIMPLE IRA	See savings incentive match plan for employees IRA.
simplified employee pension (SEP) plan	In the United States, a qualified employer-sponsored pension plan whereby an employer establishes and makes contributions into an individual retirement account or individual retirement annuity for each participating employee; however, the employee owns the account. Self-employed people also may establish a SEP plan.
simultaneous death act	A state statute which provides that if an insured and beneficiary die at the same time or under circumstances that make it impossible to determine which of them died first, the insured is deemed to have survived the beneficiary, and policy proceeds are payable as though the insured outlived the beneficiary, unless the policy provides otherwise.
single life annuity	See straight life annuity.
single-employer group	A group made up of the employees of one company.
single-premium annuity	An annuity that is purchased by the payment of a single, lump-sum amount.
single-premium deferred annuity (SPDA) contract	A deferred annuity that is purchased with a lump-sum premium payment and provides periodic income payments that begin more than one annuity period after the annuity is purchased.
single-premium immediate annuity (SPIA) contract	An immediate annuity that is purchased with a lump-sum premium payment and provides periodic income payments that begin one annuity period after the annuity is purchased.
single-premium whole life insurance policy	A type of limited-payment whole life policy that requires only one premium payment.
SIU	See special investigative unit.
small employer	In the United States for purposes of the Health Insurance Portability and Accountability Act (HIPAA), an employer that has at least 2 but no more than 50 employees.
social insurance program	An insurance plan that is established by law and administered by a government and that provides assistance to specified groups of the population, such as the elderly, disabled, and unemployed.
Social Security	In the United States, a federal social insurance program that provides specified benefits, including a monthly retirement income benefit, to people who have contributed to the plan during their income-earning years. The program also provides a benefit to qualified disabled individuals, as well as to the widows, widowers, and surviving dependent children of qualified deceased workers.
Social Security Act	See Old Age, Survivors, Disability and Health Insurance (OASDHI) Act.
Social Security Disability Income (SSDI)	In the United States, a federal social insurance program that provides disability income benefits to U.S. workers who become disabled as a result of nonwork-related accidents or illnesses, who are under age 65, and who have paid a specified amount of Social Security tax for a prescribed number of quarter-year periods.
SOH	Statement of health. See nonmedical supplement.
sole proprietorship	A business that is owned and operated by one person.
solvency	(1) A company's ability to meet its financial obligations on time. (2) For an insurer, the ability to maintain capital and surplus above the minimum standard of capital and surplus required by law. Also known as statutory solvency.
Solvency II	In Europe, insurance solvency legislation that is designed to regulate insurance company solvency in the public interest and to facilitate the development of a single market in insurance services among European Union member nations.
solvency law	Any law designed to ensure that insurance companies are financially able to meet their debts and to pay policy benefits when they come due.
SOX	See Sarbanes-Oxley Act.
SPDA contract	See single-premium deferred annuity contract.
Special Activities Database (SAD)	In the United States, a database that is maintained by the National Association of Insurance Commissioners and that enables state insurance regulators to exchange information about companies and individuals who (1) have been the subject of an insurance department investigation, (2) have been charged with violations, or (3) are suspected of engaging in unlawful activities.
special class	See substandard risk class.
special investigative unit (SIU)	Within an insurance company, a group of individuals--often composed of representatives of the claim, legal, and internal audit functions as well as independent investigators--that is responsible for detecting, investigating, and resolving claims, particularly those involving insurance fraud.
special surplus	For insurers in the United States, the part of an insurer's surplus that the insurer's board of directors has set aside (1) to meet unforeseen contingencies or (2) to pay for certain extraordinary expenses. Also known as special surplus funds, assigned surplus, appropriated surplus, earmarked surplus, and contingency reserves.
special surplus funds	See special surplus.
special termination	A provision in a reinsurance agreement that allows a direct writer to completely withdraw from a reinsurance agreement if the reinsurer experiences a specified business event—such as the loss of its insurance license, a significant rating agency downgrade, or the loss of a significant proportion of its capital and surplus.
specialized medical questionnaire	A document sometimes used during individual underwriting that requests detailed information on a specific illness or condition from a proposed insured's attending physician or from a physician who examines the proposed insured at the request of the insurance company.
specific deductible	See deductible.
specific stop-loss coverage	See individual stop-loss coverage.
speculation	The unethical purchase of insurance to make a profit on the proceeds rather than to protect against the risk of financial loss.
speculative risk	A risk that involves three possible outcomes: loss, gain, or no change.
spendthrift trust clause	A provision that may be included in a life insurance policy or settlement agreement to protect the policy proceeds from being seized by the beneficiary's creditors.
SPIA contract	See single-premium immediate annuity contract.
split-dollar life insurance plan	An arrangement between the owner of a life insurance contract and a non-owner of the contract under which either party to the arrangement pays all or part of the premiums, and one of the parties paying the premiums is entitled to recover (either conditionally or unconditionally) all or any portion of those premiums and such recovery is to be made from, or is secured by, the proceeds of the contract.
spouse and children's insurance rider	A supplemental life insurance policy benefit offered by some insurers that provides term life insurance coverage on the insured's spouse and children. Also known as a family insurance rider.
spread compression	The narrowing of an insurer's interest spread.
spread expansion	A phenomenon consisting of a widening of an insurer's spread that occurs when market interest rates fall and the insurer reduces crediting rates to the new market level while it continues to earn a higher overall rate of return on investments.
spread-loss coverage	A nonproportional reinsurance arrangement—similar to a loan—between a direct writer and a reinsurer in which the reinsurer agrees to pay the direct writer if the direct writer's total claims for a specified block of business in a stated period exceed a specified monetary amount. In return, the direct writer is required to repay the reinsurer's funds over time with interest payable according to specified terms, thus "spreading the loss."
SRO	See self-regulatory organization.
SSDI	See Social Security Disability Income.
stakeholder	Any party that has an interest in how a company conducts its business.
standard class	See standard risk class.
Standard Nonforfeiture Law for Individual Deferred Annuities	A model law developed by the National Association of Insurance Commissioners that requires individual fixed deferred annuities to provide a minimum nonforfeiture benefit if the contract owner surrenders the contract before income payments begin.
Standard Nonforfeiture Law for Life Insurance	A National Association of Insurance Commissioners model law that requires most individual life insurance policies to provide specified minimum nonforfeiture values.
standard premium rate	A premium rate charged insureds who are classified as standard risks.
standard risk class	In insurance underwriting, the group of proposed insureds who represent average risk within the context of the insurer's underwriting practices and therefore pay average premiums in relation to others of similar insurability. Also known as a standard class. Contrast with declined risk class, preferred risk class, and substandard risk class.
Standard Valuation Law	A National Association of Insurance Commissioners' model law that imposes minimum requirements on the size of insurance and annuity reserves and establishes guidelines insurers must follow when calculating their reserves.
state code	In the United States, all of the statutes of a given state, which are compiled, organized into some systematic form, and published in a series of books. See also state insurance code.
state insurance code	The portion of a state code that is devoted to regulating the insurance industry within the applicable state.
state insurance department	In the United States, the administrative agency in each state that is responsible for making sure that companies operating in the state comply with applicable regulatory requirements.
state of domicile	In the United States, the state in which a company is incorporated and has its principal legal residence. Also known as the domiciliary state.
stated interest rate	See nominal interest rate.
statement of cash flows	See cash flow statement.
statement of financial condition	See balance sheet.
statement of health (SOH)	See nonmedical supplement.
statement of operations	See income statement.
statement of owners' equity	A financial statement that provides information about changes that occurred in owners' equity between two sequential balance sheets.
Statement on Auditing Standards (SAS) No 70, Service Organizations	See SAS 70.
static budget	A type of budget that is generally not subject to change unless management has approved the changes. Also known as a fixed budget or a fixed-amount budget. Contrast with a flexible budget.
static mortality table	A type of mortality table that has not been adjusted to provide for future changes in mortality. Contrast with mortality table with projection.
statistical phase of IRIS	The initial phase of the Insurance Regulatory Information System used in the United States to monitor the financial condition of insurers during which regulators compare the financial ratios reported in an insurer's Annual Statement with a set of 12 standard ratios as a way to test a company's solvency and profitability and its financial stability. Any unusual results require an analytical analysis of the company. See also analytical phase of IRIS.
statutory accounting practices (SAP)	Guidelines that all insurers in the United States must follow when preparing the Annual Statement and specified other financial reports that are submitted to state regulators. Also known as statutory accounting principles.
statutory accounting principles	See statutory accounting practices.
statutory reserve	See contractual reserve.
statutory solvency	See solvency definition 2.
steering control	An organizational control that is established before a business process is begun and describes how a company intends to implement the process. Also known as a feedforward control. Contrast with concurrent control and feedback control.
stock	A type of security that represents an ownership interest in a company. See also common stock and preferred stock.
stock bonus plan	A retirement plan that is funded primarily by employer contributions and that provides benefits in the form of shares of company stock rather than cash.
stock corporation	A corporation whose ownership is divided into units known as shares or shares of stock.
stock dividend	See stockholder dividend.
stock exchange	An organized marketplace where specific types of securities, such as common stock and bonds, are bought and sold by members of the exchange. Also known as a securities exchange.
stock insurance company	An insurance company that is owned by the people and organizations that own shares of the company's stock. Contrast with mutual insurance company.
stock redemption insurance	See stock repurchase insurance.
stock repurchase insurance	A type of business insurance coverage that provides the remaining stockholders of a company with money to buy the stock of a deceased partner. Also known as stock redemption insurance.
stockholder	A person or organization that owns shares of stock in a corporation. Also known as a shareholder.
stockholder dividend	A portion of a corporation's earnings paid to the owners of the company's stock. Also known as a stock dividend. Contrast with policy dividend.
stop-loss insurance	Insurance purchased by an employer that self-insures a group health insurance plan which enables the employer to place a maximum dollar limit on its liability for paying health insurance claims.
stop-loss provision	See maximum out-of-pocket provision.
stop-loss ratio reinsurance	See stop-loss reinsurance.
stop-loss reinsurance	A type of nonproportional reinsurance in which the reinsurer agrees to pay for a portion of total claims on a block of business in an amount between stated lower and upper limits for a specified operating period. Also known as stop-loss ratio reinsurance or excess-of-loss ratio reinsurance.
STP	See straight-through processing.
straight life annuity	A type of life annuity that provides periodic income payments for only as long as the annuitant lives and provides no benefit payments after the annuitant's death. Also known as a life only annuity and a single life annuity.
straight life insurance policy	See continuous-premium whole life policy.
straight-through processing (STP)	A fully automated application of technology in which all steps in a specified type of transaction process can be conducted without a need for human intervention, subject to legal and regulatory restrictions. Insurers sometimes use STP for underwriting and claim processing.
strategic business unit (SBU)	An organizational unit of a company that acts like an independent business in that it (1) generates its own identifiable profits, (2) has its own set of customers and competitors, (3) has its own independent management, (4) has its own budget, and (5) has its own set of strategic goals and strategies.
strategic planning	The process of determining an organization's major long-term corporate goals and the broad, overall courses of action or strategies that the company will follow to achieve these goals.
strategy	In business, a comprehensive plan for future action directed toward achieving various goals, including making the corporate vision a reality.
structured settlement annuity	An immediate annuity issued to a person who is entitled to receive a specified sum of money from a third party; the terms of the annuity contract are structured to carry out the terms of the agreement between the annuitant and the third party.
subaccount	An investment fund within an insurance company separate account. Also known as a fund option or a unit-linked fund. See also separate account and segregated account.
subrogation	A legal right that permits an insurer to recover payments made to an insured when the insured received payment for the claim through a separate legal action.
subscription	See quota share.
subsidiary	A company that is owned or controlled by another company known as a holding company.
substandard class	See substandard risk class.
substandard premium rate	A higher-than-standard premium rate charged insureds who are classified as substandard risks.
substandard risk class	In the underwriting of life insurance, a group of proposed insureds whose anticipated mortality rates are higher than average, but who are still considered to be insurable. Also known as a special class, a substandard class, or an impaired risk class. Contrast with declined risk class, preferred risk class, and standard risk class.
succession beneficiary clause	See preference beneficiary clause.
successor beneficiary	See contingent beneficiary.
successor payee	See contingent payee.
suicide exclusion provision	A life insurance policy provision that typically states that if the insured dies as a result of suicide within a certain period—usually one or two years from the date the policy was issued, the insurance company does not have to pay the policy proceeds.
suitability	In insurance sales, the process of determining whether a particular insurance or annuity product is an appropriate purchase for an applicant based on the applicant's needs and financial condition. Some states in the United States have a regulatory requirement that places a duty on agents and/or insurers to have a reasonable method of deciding that a specific financial services product is suited to a customer's needs.
suitability requirement	A regulatory requirement that imposes a duty on insurers and/or insurance producers to have reasonable grounds on which to decide that a specific product is suitable for a customer's needs.
Suitability Rule (Conduct Rule 2310)	In the United States, a Financial Industry Regulatory Authority conduct rule that requires registered persons to have reasonable grounds for recommending investment products to customers based on the customers' financial situation, tax status, and investment objectives.
summary plan description	For employee benefit plans, a written document that is understandable by the average plan participant and that reasonably informs participants and beneficiaries about their rights and obligations under the plan. In the United States, the Employee Retirement Income Security Act (ERISA) requires employers that sponsor employee benefit plans to provide employees with a summary plan description.
superintendent of insurance	See insurance commissioner.
Supervisory Rule (Conduct Rule 3010)	In the United States. a Financial Industry Regulatory Authority (FINRA) conduct rule that requires broker-dealers registered with the Securities and Exchange Commission and FINRA as principals to establish and maintain a supervisory system and written supervisory procedures to oversee the activities of each registered person that acts on behalf of the principal.
supplemental benefit	A benefit or additional coverage added to the coverage specified in a basic insurance policy.
supplemental illustration	A life insurance policy illustration that is provided along with a basic illustration and that presents the information in a different format than that used in the basic illustration.
supplemental major medical policy	An insurance policy issued in conjunction with an underlying basic medical expense insurance policy to provide benefits for expenses that exceed the benefit levels of the underlying basic plan and, often, for expenses that are not covered by the underlying plan.
supplementary contract	A settlement agreement between an insurer and a life insurance policy beneficiary entered into after the insured's death by means of which the beneficiary selects a settlement option.
surplus	The cumulative amount of money that remains in an insurance company over time and is calculated as the insurer's assets minus its liabilities and its capital. Compare to retained earnings.
surplus relief	A decrease in potential surplus strain that strengthens an insurer's financial position. Contrast with surplus strain.
surplus strain	The decrease in an insurer's surplus caused by the high first-year costs and the reserving requirements associated with new products. Also known as new business strain. Contrast with surplus relief.
surrender	A transaction in which the owner of a cash value life insurance contract or deferred annuity contract elects to terminate the contract prior to its maturity and receive the cash surrender value or the accumulation value.
surrender benefit	See cash surrender value.
surrender charge	(1) A specific charge imposed if the owner of a cash value life insurance policy surrenders the policy for its cash surrender value. (2) A fee typically imposed if a deferred annuity contract is surrendered within a stated number of years after it was purchased.
surrender rate	For a block of insurance or annuity contracts, the ratio of the number of contracts surrendered during a contract year to the total number of contracts in force at the beginning of the year.
surrender value	See cash surrender value.
survivor benefit	See death benefit definition 2.
survivorship clause	A policy provision included in some life insurance policies which states that the beneficiary must survive the insured by a specified period, usually 30 or 60 days, to be entitled to receive the policy proceeds. Also known as a common disaster clause.
survivorship life insurance	See last survivor life insurance.
sweep account	See asset management account.
systematic risk	See nondiversifiable risk.
systemically important financial institution (SIFI)	As identified by the Financial Stability Oversight Council, a financial institution whose failure could potentially pose a risk to the U.S. financial system and which is therefore subject to more stringent regulatory standards than other firms.

table of retention limits	See retention schedule.
table of underwriting requirements	For each insurance product, a document that specifies the kinds of information the underwriter must consider in assessing the insurability of a person who is proposed for coverage under that policy. Also known as an age and amount requirements chart.
table rating method	A method for adjusting individual life insurance premium rates to compensate for extra mortality that divides substandard risks into broad groups or tables according to their numerical ratings; the extra mortality for each substandard group is expressed as a percentage added to standard mortality as has been shown by the insurer's actual mortality experience. Contrast with flat extra premium method.
tabular mortality rate	A mortality rate shown in a mortality table.
tabular reserve	See contractual reserve.
tactical planning	See operational planning.
tail risk	Generally, a reference to risks of low probability but high impact occurrences; the statistical outcomes represented in the tails of probability distribution curves.
tangible asset	An asset that has a physical form. Also known as tangible property. Contrast with intangible asset.
tangible property	See tangible asset.
target examination	See target market conduct examination.
target market	A group of consumers to whom a business will attempt to sell a particular product.
target market conduct examination	In the United States, a market conduct n examination by state insurance regulators of one or more specific areas of an insurer's operations to ensure that those operations are in accordance with state insurance laws and regulations. Also known as a target examination. Contrast with comprehensive market conduct examination.
tax-deferred basis	The accumulation of interest and other income on which income taxes are not payable until the accumulated funds are actually received.
technical design	See technical product design.
technical product design	For an insurance product, the phase of product development that involves creating the financial structure, product language, product provisions, and underwriting and issue specifications. Also known as financial design.
telemarketing	A direct response sales method that uses the telephone to produce sales.
teleunderwriting	A method by which a home office employee or a vendor, rather than the producer, gathers most or all of the information needed for underwriting life insurance.
temporary flat extra premium	In individual life insurance, an amount added to the premium for an impairment for which the extra mortality risk is expected to decrease and eventually disappear over a limited time period. See also flat extra premium method. Contrast with permanent flat extra premium.
temporary insurance agreement (TIA)	A contract between an insurer and an applicant that provides temporary coverage on the proposed insured before a policy is issued and delivered; such coverage may be subject to certain conditions. See also binding premium receipt and conditional premium receipt.
term life insurance	Life insurance that provides a death benefit only if the insured dies during the period specified in the policy. Contrast with cash value life insurance.
terminal illness (TI) benefit	A supplemental life insurance policy benefit under which the insurer pays a portion of the policy's death benefit to a policyowner-insured who suffers from a terminal illness and has a physician-certified life expectancy of less than a stated time, generally 12 or 24 months.
termination	The complete cancellation of a reinsurance agreement for both new business and in-force business.
termination for new business	An agreement by the parties to a reinsurance agreement to no longer cede or assume new business, although reinsurance coverage continues on business already in place.
termination of reinsurance	The process by which a direct writer cancels the reinsurance covering a policy it issued.
third-party administrator (TPA)	A company or organization that provides various administrative services to insurers, including underwriting, premium collection, and claims processing.
third-party distribution system	A distribution system in which financial institutions or other organizations distribute to their own customers insurance products issued by other companies.
third-party policy	A policy purchased by one person or business on the life of another person.
thrift	See savings and loan association.
TI benefit	See terminal illness benefit.
TIA	See temporary insurance agreement.
time deposit account	An account into which funds are deposited with the expectation that they will remain on deposit for a period of time.
time limit on certain defenses provision	A provision in individual medical expense insurance policies which states that after the policy has been in force for a specified period—usually two or three years—the insurer cannot use a material misrepresentation in the application to contest the policy or deny a claim unless the misrepresentation was fraudulent.
time limitation clause	A life insurance policy provision which specifies that the insured's death must occur within a certain period of time—usually 90 days—from the date of an accident for accidental death benefits to be payable.
time value of money	A concept which states that the value of a sum of money will change over time as a result of the effects of interest.
top-down budgeting	Budgeting that begins with a company's strategic plan, as well as financial information about the company's activities in prior years, and that is passed down from senior management to lower-level management. Contrast with bottom-up budgeting.
top-heavy plan	A group retirement plan under which, for a given plan year, the present value of accrued benefits for key employees exceeds a specified percentage of the present value of accrued benefits for all employees.
total asset turnover ratio	A critical activity ratio that measures how efficiently a company has used its total assets to generate total revenues.
total disability	A disability that meets the requirements of a disability benefit provision in an insurance policy or policy rider and that qualifies a covered person to receive disability income benefits.
total-needs programming	In insurance sales, the practice of bringing together all a prospect's financial needs and offering multiple financial or insurance products to meet those needs.
TPA	See third-party administrator.
traditional indemnity reinsurance	A type of indemnity reinsurance arrangement that is used to transfer a portion of a direct writer's accepted risk on an ongoing basis and that is intended to be a permanent transfer. Contrast with finite reinsurance.
traditional IRA	In the United States, a type of individual retirement arrangement that allows people with earned income to make tax-deductible contributions, and the investment earnings are tax-deferred until the funds are withdrawn. A traditional IRA may be either an individual retirement account or an individual retirement annuity. Also known as a regular IRA. Contrast with a Roth IRA.
trail commission schedule	See asset-based commission schedule.
Treasury bill	Discount debt security issued by the United States Treasury that operates very much like a zero -coupon bond with an initial maturity of one year or less.
Treasury bond	A bond issued by the United States Treasury that has a maturity at issue in excess of ten years. In practice, Treasury bonds are issued for much longer maturities, usually in the range of 20 to 30 years.
treasury operations	Within an insurance company, the management and maintenance of records and reports for all of an insurer's cash transactions, specifically money deposited or withdrawn from accounts at a bank or other financial institution. Also known as cash management or cash accounting.
treasury stock	A company's stock that has been repurchased at market price by the issuing company with the intention of reselling the stock at a later date.
trust	A legal arrangement whereby one or more persons—called the trustees—hold legal title to property on behalf of another person—called the trust beneficiary—and are responsible for administering the property for the benefit of the trust beneficiary.
trust beneficiary	In a trust, the person for whose benefit the trustee holds title to property.
trustee	In a trust, the person who holds title to property for the benefit of another.
turnover ratios	See activity ratios.
twisting	A prohibited practice that occurs when an insurance producer misrepresents the features of a policy to induce the customer to replace an existing policy, often to the disadvantage of the customer.
tying arrangement	An organization conditioning the sale of one product or service on the sale of one or more of the organization's other products or services.

UCR fee	See usual, customary, and reasonable fee.
UL insurance	See universal life insurance.
ultimate mortality table	A type of mortality table that shows the expected mortality rates of people who have not recently been underwritten for insurance policies. See also select and ultimate mortality table. Contrast with select mortality table.
umbrella liability insurance	Liability insurance providing additional liability coverage over and above that provided by a homeowners, automobile, or comprehensive personal liability policy.
unallocated pension funding contract	A type of pension plan contract in which some or all of the plan sponsor's contributions are held in a pooled account and are not attributed to plan participants until the time arrives for the disbursement of benefits. Contrast with allocated pension funding contract.
unauthorized insurer	In the United States, an insurer that does business in a particular state without becoming licensed to do business in that state in accordance with that state's law. Also known as nonadmitted insurer.
undeliverable	Term used to describe an insurance policy that the applicant refuses when the agent attempts to deliver it. Also referred to as not taken up.
underwriter	An insurance company employee who (1) assesses and classifies the degree of risk a proposed insured or group represents with respect to a specific insurance product and (2) makes a decision concerning the acceptance of that risk.
underwriting	The process of (1) assessing and classifying the degree of risk a proposed insured or group represents with respect to a specific insurance product and (2) making a decision to accept or decline that risk. Also known as selection of risk.
underwriting capacity	The highest monetary amount of risk that a direct writing company will accept on an individual insured so that unusual fluctuations in claims will not damage ongoing company solvency. Also known as risk-taking capability.
underwriting guidelines	An insurer's general standards that underwriters follow as they establish the level of risk that a proposed insured or group presents.
underwriting manual	A paper or electronic guide to underwriting action that includes the information an insurer uses to assign relative values to life insurance risks and typically provides descriptive information on impairments.
underwriting objectives	See underwriting philosophy.
underwriting philosophy	A set of objectives for guiding all of an insurer's underwriting actions that generally reflects the insurer's strategic business goals and includes its pricing assumptions for products. Also known as underwriting objectives.
underwriting worksheet	For a particular insurance case, a document that contains records of telephone calls and other communications, documentation of requests for reinsurance, underwriting requirements and other information requested, and other notations that explain clearly the manner in which the case has been handled from the time it was submitted to the insurer.
Unfair Claims Settlement Practices Act	A National Association of Insurance Commissioners' model act that specifies a number of actions that are considered unfair claims practices if committed by an insurer (1) in conscious disregard of the law or (2) so frequently as to indicate a general business practice.
Unfair Trade Practices Act	A National Association of Insurance Commissioners' model law that many states in the United States have enacted that identifies certain business practices as unfair and prohibits those practices in the business of insurance if they are committed (1) flagrantly, in conscious disregard of the law or (2) so frequently as to indicate a general business practice.
unfavorable variance	In budgeting, an accounting result in which actual revenues are less than expected revenues and/or actual expenses are greater than expected expenses. Contrast with favorable variance.
unilateral contract	A contract under which only one of the contracting parties makes a legally enforceable promise. Contrast with bilateral contract.
uninsured motorists coverage	Insurance that covers an insured driver and her passengers for bodily injuries and, in some jurisdictions, property damage incurred in an accident with a driver who, contrary to legal requirements, carries no liability insurance.
unisex mortality table	A type of mortality table that shows a single set of mortality rates to be used for both males and females. Contrast with sex-distinct mortality table.
unit contribution margin	The difference between the selling price of one unit of product and the variable costs for one unit of product.
unit cost	The incurred expense attributable to a single measured amount of work or product.
unit of coverage	A basic amount of coverage that insurers use when calculating premium rates for their products. For life insurance, a unit of coverage usually is $1,000 of coverage.
unit trust	See separate account.
unit-linked fund	See subaccount.
unit-linked portfolio	See separate account.
universal life (UL) insurance	A form of cash value life insurance that is characterized by its flexible premiums, its flexible face amount, its flexible death benefit amount, and its separation of the three primary policy elements—mortality charges, interest rate, and expense charges.
unpaid premiums provision	An individual health insurance policy provision which states that when a claim is paid, any premium due and unpaid may be deducted from the claim payment.
unrealized gain (or loss)	The difference between the book value of an invested asset and its fair market value. The gain or loss is not an actual gain or loss because the investment has not matured or been sold. Contrast with realized gain (loss).
unsecured bond	See debenture.
up-selling	A sales activity in which customers are invited to purchase a more powerful, more enhanced, or more profitable product than the one a customer originally considers purchasing.
upstream holding company	A holding company that controls the corporation that formed it and can also own other subsidiaries. Contrast with downstream holding company.
USA PATRIOT Act	A U.S. federal law that focuses on reducing terrorist activity by detecting money laundering and other illegal financing activities. Also known as the Patriot Act.
use of funds	See cash outflow.
usual, customary, and reasonable (UCR) fee	The amount that medical care providers within a particular geographic region commonly charge for a particular medical service.
utilization review	A process managed care plans use to evaluate the medical necessity, appropriateness, and cost-effectiveness of health care services and treatment plans.

valid contract	A contract that is enforceable by law. Contrast with void contract and voidable contract.
validation point	See breakeven point.
valuation	The process of calculating the monetary value of a company's assets, liabilities, and capital for accounting and financial reporting purposes.
valuation actuary	A type of actuary who specializes in rendering a professional opinion as to the proper values for an insurance company's assets and liabilities, including its reserves.
valuation mortality table	A type of mortality table that has a margin built into the mortality rates, is used to calculate policy reserves, and is inherently more conservative than is a basic mortality table. Contrast with basic mortality table.
valued contract	A type of insurance contract that specifies in advance the amount of the benefit that will be payable when a covered loss occurs, regardless of the actual amount of the loss incurred. A life insurance policy is a valued contract. Contrast with contract of indemnity.
variable annuity	An annuity under which the amount of the accumulated value and the amount of the periodic income payments fluctuate in accordance with the performance of one or more specified investment funds. Contrast with fixed annuity.
variable budget	See flexible budget.
variable cost	A business cost that changes in direct response to changes in the level of operating activity. Contrast with fixed cost.
variable interest rate	An interest rate that fluctuates according to the rise and fall of interest rates in the marketplace.
variable life (VL) insurance	A form of cash value life insurance in which premiums are fixed, but the death benefit and other values may vary, reflecting the performance of investment subaccounts that the policyowner selects.
variable rate certificate of deposit	A certificate of deposit that pays an interest rate that rises and falls in accordance with a benchmark rate. Also known as an adjustable rate certificate of deposit.
variable rate mortgage	See adjustable rate mortgage.
variable universal life (VUL) insurance	Cash value life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance.
variance	In budgeting, the difference between an actual result and an expected result. See also favorable variance and unfavorable variance.
venture capital	An equity (capital) investment in a new and usually risky enterprise.
vested	In regard to a group retirement plan, a plan participant's right to receive partial or full benefits under the plan even if he terminates employment prior to retirement.
vested commission	For life insurance sales, a commission that is guaranteed payable to a producer whether or not the producer represents the company when the commission becomes due. Contrast with nonvested commission.
viatical settlement	A financial transaction in which a policyowner, typically a terminally-ill individual with a life expectancy of twenty-four months or less, sells an insurance policy to a third party for more than its cash value but less than its face value. See also viatical settlement company. Contrast with life settlement.
viatical settlement company	An organization that exists to buy life insurance policies from policyowners at a discount. The organization assumes a policy's premium payments and collects the death benefit of the policy upon the policyowner's death. When the policyowners are terminally ill individuals with a life expectancy of twenty-four months or less, the transaction is known as a viatical settlement. When the policyowners are senior adults with somewhat longer life expectancies, the transaction is known as a life settlement. Also known as a life settlement company.
vision care coverage	Medical expense coverage that provides the insured with benefits for expenses incurred in obtaining eye examinations and corrective lenses.
VL insurance	See variable life insurance.
void contract	A contract that does not meet one or more of the legal requirements to create a valid contract and, thus, is never enforceable. Contrast with valid contract and voidable contract.
voidable contract	A contract under which one party has the right to avoid his obligations under the contract. Contrast with valid contract and void contract.
voluntary trade association	A multiple-employer group that consists of individual employers that work in similar industries and have common business interests.
VUL insurance	See variable universal life insurance.

waiting period	For disability insurance, see elimination period. For group insurance, see probationary period.
waiver	The voluntary or intentional relinquishment of a known legal right.
waiver of premium for disability (WP) benefit	A supplemental life insurance policy or annuity contract benefit under which the insurer promises to give up its right to collect premiums that become due while the insured is disabled according to the policy or rider's definition of disability.
waiver of premium for payor benefit	A supplemental life insurance policy benefit which provides that the insurance company will waive its right to collect a policy's renewal premiums if the payor—the person paying the policy premiums—dies or becomes totally disabled.
waiver of surrender charge provision	A provision in an annuity contract which states that no surrender charge will be assessed on surrenders or withdrawals in excess of specified levels under certain conditions, such as disability, poor medical condition, terminal illness, unemployment, and confinement in a nursing home or hospital.
war exclusion provision	A life insurance policy provision that limits an insurer's liability to pay a death benefit if the insured's death is connected with the war or military service as defined in the insurance policy.
warranty	A promise or guarantee recognized by law that a statement of fact is true. The statement is made by a party to a contract at the time of contracting, becomes a part of the contract, and if not literally true, gives the other party a ground to avoid the contract. Contrast with representation.
welfare benefit plan	According to the Employee Retirement Income Security Act (ERISA) in the United States, any plan or program that an employer establishes to provide specified benefits, such as life and health insurance benefits, to plan participants and their beneficiaries.
well-written business	In insurance sales, a policy sale in which (1) the company (or producer) identifies the specific needs of the customer, and the customer recognizes that those needs are important, (2) the insurance product actually meets those needs, and (3) the customer is financially capable of paying the premiums. Also known as quality business.
whole life insurance	A type of cash value life insurance that provides lifetime insurance coverage usually at a level premium rate that does not increase as the insured ages.
wholesaler	In insurance sales, a sales intermediary appointed by an insurer to promote the insurer's products to third-party distributors and to provide these distributors with marketing support.
will	A legal document that directs how an individual's property is to be distributed after her death.
window premiums	Additional premiums that most insurers will accept during the first contract year of a single premium deferred annuity, after the initial single premium has been paid.
with profits policy	See participating contract.
withdrawal	A transaction in which the owner of a cash value life insurance policy or a deferred annuity contract elects to receive a portion of the policy's cash value while the policy is in force or of the contract's accumulation value during the accumulation period. Also known as a partial surrender or policy withdrawal. A full withdrawal, also known as a surrender, results in the termination of the policy.
withdrawal charge	A charge imposed on the owner of a deferred annuity when the owner withdraws more than a stated percentage of the annuity contract's accumulation value during the accumulation period.
workers' compensation	Government-mandated insurance that provides benefits to covered employees and their dependents if the employees suffer job-related injury, disease, or death. Workers' compensation programs exist in many countries, including Canada and the United States.
worksite marketing	In insurance sales, a method for distributing insurance products to people at their place of work on a voluntary, payroll-deduction basis.
WP benefit	See waiver of premium for disability benefit.
write-down	A permanent reduction in the book value of an asset.

yearly renewable term (YRT) insurance	A plan of term life insurance that provides coverage for one year and is renewable for a stated number of years. Also known as annually renewable term insurance.
yearly renewable term (YRT) reinsurance	A type of reinsurance that is used to reinsure only the mortality portion of a life insurance risk.
yield to maturity	The rate of return a bondholder will earn if he holds a bond until maturity.
YRT insurance	See yearly renewable term insurance.
YRT reinsurance	See yearly renewable term reinsurance.

ZBB	See zero-based budgeting.
zero-based budgeting (ZBB)	Budgeting that begins with the premise that no company resources will be allocated for the next accounting period unless and until each expense is shown to be in accord with the company's strategic and operational goals.
zero-coupon bond	A bond that does not pay interest coupons during the term of the bond. Instead, the bond is sold at a discount to its face value. Then, the principal is paid in full at the bond's maturity date.

Pacific Life Insurance Company assumes no responsibility for the contents of this glossary. Contact your legal or tax advisor with questions regarding legal or tax aspects of the terms or definitions. Contact us if you have questions regarding the applicability of these terms to Pacific Life's products.

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Glossary of Insurance & Financial Services Terms