Glossary and Acronyms
Actuary – Someone who applies the mathematical analysis of past loss data and other statistics to plan rates and estimate an insurer's future liabilities.
Additional Named Insured – An insurance policy where a person enjoys protection under the policy in addition to the principal named insured.
Administrative Cost – Costs linked to insurance marketing, utilization analysis, premium collection, insurer profit, medical underwriting, agents' commissions, claims processing, risk management, and quality assurance programs.
Admitted Insurer – Also recognized as an authored insurer, an insurer licensed to write special types of insurance within a particular state.
Adverse Selection – When an insurer is left with a disproportionate share of undesired, higher-risk business. Especially prevalent in the life and health lines, adverse selection can occur when higher-than-expected claims experience leads an insurer to raise rates, which in turn causes the migration of "good" risks to companies charging less. Adverse selection may be due to incorrect underwriting and risk selection by the insurer or by superior knowledge of the risk by the insured. Among applicants for a given group or individual program, the tendency for those with an impaired health status, or who are prone to higher-than-average utilization of benefits, to be enrolled in disproportionate numbers and lower deductible plans.
Agent – Someone who solicits insurance on behalf of an insurer.
Alien Insurer – An insurer domiciled outside the United States that manages business within the United States.
Alternative Minimum Tax (AMT) – Refers to the federal income tax liability of insurers, despite whether or not the insurer earns taxable income using standard calculations.
American Council of Life Insurance (ACLI) – Based in Washington, DC, a trade organization representing the larger life insurers.
Anniversary Date – The anniversary of any given insurance policy's effective date.
Annual Statement – A report of an insurer's financial operations filed annually with the insurance regulatory authorities of each jurisdiction in which the insurer is licensed to conduct business. The report includes a balance sheet, as well as comprehensive schedules and exhibits.
Annuitant – Someone who accepts payment pursuant to an annuity contract.
Annuity – A contract that caters for a fixed or variable periodic payment to a person (the annuitant) made from a stated or contingent date and extended for a specified period, such as for a number of years or for life.
Arbitration – A process by which two parties can resolve a dispute without resorting to litigation.
Arbitration Clause – A provision in a contract in which the parties agree to negotiate disputes rather than opting for litigation. Most contracts between insurers and reinsurers include an arbitration clause to bypass avoidable litigation.
Assessment – There are two definitions: 1. an additional payment that may be required of policy owners of an assessable mutual insurer in the event losses exceed expectations and 2. a charge levied upon insurers by state guaranty funds or other regulatory authorities.
Asset-Liability Matching – An investment strategy for insurers in which the asset manager strives to marry the maturities of fixed-income securities to the schedule of claims and additional payments anticipated by the insurer.
Asset Valuation Reserve (AVR) – A reserve adopted in interim form by the National Association of Insurance Commissioners in December 1991 to replace the Mandatory Securities Valuation Reserve (MSVR). Beginning in 1992, AVR was established as a liability on life insurance statutory financial statements. Life insurers are required to establish statutory reserves for mortgage loans, real estate, equity, and joint ventures, as well as for those investments (fixed maturities and equity) previously subject to MSVR. AVR captures all realized and unrealized gains and losses on such assets.
Automatic Reinstatement – A provision within a policy that provides for automated reinstatement of the policy following payment of a loss.
Beneficiary – Someone who is named in an insurance policy as the beneficiary of the proceeds of the policy. it also applies to any person qualified as either a subscriber or a dependent for a managed care service per the terms of the contract.
Best Interest Standards – Regulations that demand insurers to practice standards and processes to oversee recommendations by agents and brokers to their consumers with respect to life insurance policies and annuity contracts, ensuring that those recommendations are made with the consumer’s needs top of mind.
Best Ratings – Ratings announced by A. M. Best Company, Inc. – a company that writes reports on the financial condition and history of individual insurers and presents ratings on most of the insurers doing business in the U.S.
Binder – Provisional authorization of coverage published before the effective date of an insurance policy.
Book – Refers to an insurer's in-force business, i.e. book of business.
Broker – An intermediary financial services provider who serves the insured in its activities with an insurer and/or shops for coverage on behalf of the insured.
Cancellation – Terminating an insurance policy by the insurer or the insured prior to the policy reaching its expected expiration date.
Capacity – The quantity of insurance accessible from a single insurer or from an insurer within a particular market.
Captive Agent – An insurance agent – usually an employee of the insurer – who agrees to contribute exclusive representation to one insurer.
Captive Insurer – An insurer managed by one or more insureds, designed for the purpose of insuring risks connected to the activities of its stockholders or affiliates.
Carrier – Synonymous with insurer.
Cash Surrender Value – How much cash that's available to a policy owner shall they decide to abandon a life insurance policy or annuity contract.
Certificate of Insurance – Documentation distributed to those insured under a group policy setting forth the coverage terms.
Cession – Amount of insurance ceded to a reinsurer.
Chartered Life Underwriter (CLU) – A person with at least three years of experience in life and health insurance business who has passed a series of ten professional examinations to receive this formal designation.
Claim – A request for payment under an insurance policy for a loss included within that policy.
Claim Department – A team within an insurance organization accountable for evaluating and resolving insurance claims.
Claimant – A person who submits a claim after a loss is suffered.
Collateral Assignment – Utilization of a life insurance policy as collateral for a loan.
Commission – Compensation paid to a producer for creating business; primary insurers may additionally be paid a commission for ceding business to a reinsurer (see Ceding Commission).
Common Law – Legal principles established by the courts, which serves as model for deciding future cases.
Commute – The method of estimating, paying and discharging an insurer's current and future commitments.
Contingent Beneficiary – Someone who is authorized to accept the proceeds of a life insurance policy if and only if the primary beneficiary passes away before the insured.
Convertible Term Insurance – Term life insurance that's interchangeable to permanent life insurance without proof of insurability.
Corporate Name – Started in 1994, a new participant in Lloyd's of London where liability is limited, and capital is provided on a corporate basis.
Corporate-Owned Life Insurance (COLI) – A life insurance policy designed to cover an employee but is controlled by the corporation.
Coverage – A term inclusive of all protections provided by an insurance policy.
Credit Life Insurance – A kind of reducing term insurance that includes the life of a debtor and pays all proceeds to the creditor.
Crediting Rate – Interest rate applied to life insurance policies and annuity contracts, whether contractually agreed upon by all parties or disclosed for a specified period of time.
Death Benefit – Refer to Face Amount.
Declarations – The section of an insurance policy that describes important information about both the insured and the coverage provided within said policy.
Declination – The official declaration of an insurance policy application being denied or rejected.
Decreasing Term Insurance – A type of term life insurance in which benefits will reduce throughout the life of the contract.
Demutualization – The procedure by which a mutual company is converted into a stock company.
Deposit Term Insurance – A type of term life insurance in which the first year's premium is more expensive than the successive premiums.
Deviation – A variation from the standard form or published rates of an insurer.
Direct Billing – A system in which the insurer rather than the independent agent issues invoices directly to the policyowner.
Direct Response Marketing – A method by which to market insurance products through the media, Internet and mail.
Direct Writer – An insurer whose products are marketed directly to the public by a sales force that consists of employees or exclusive agents of the insurer.
Disability – A condition, either physical or mental, resulting from illness, injury or disease.
Disability Income Insurance – A particular type of health insurance that distributes payments to a disabled insured to pay for lost income during periods of disability.
Dividends – Money payable by an insurer from earnings to policyowners by mutual, reciprocal and stock insurers, and to stockholders by stock insurers.
Dividend Options – The various options accessible to an insured who has selected to receive dividends under their life insurance policy.
Dividend Scales – The actuarial formulas used by life insurers to decide amounts payable as dividends on policies depending on a mixture of experience factors, including investment outcomes, lapse rates, premium taxes, mortality, expenses, policy loan interest and utilization rates.
Domestic Insurer – An insurer conducting business in the jurisdiction in which it is domiciled.
Double Indemnity – A benefit available as an endorsement to certain life insurance policies that produces that twice the face amount of the policy shall be payable if death is accidental.
Effective Date – The official date when coverage commences under an insurance policy.
Eligibility Date – The official date when a participant's eligibility period starts.
Employee Retirement Income Security Act (ERISA) – Established in 1974, a federal legislation relevant to most welfare and private pension plans. This legislation intends to protect protected employees by establishing minimum standards for such plans.
Employee Stock Ownership Plan (ESOP) – A contribution pension plan that invests primarily in the employer’s securities.
Endorsement – An amendment or alteration to an original insurance policy; also known as a rider.
Endowment Life Insurance – A type of whole life insurance in which premiums are paid until a fixed date or when the policy matures and benefits become available to the policyowner.
Exclusion – A provision in an insurance policy that eliminates coverage for certain risks, individuals, classes of property or locations.
Expiration Date – The official date when insurance coverage ends under a given policy.
Exposure – A unit of measurement for the insurer’s assumed risk.
Face Amount – The payment amount confirmed on the cover page of a life insurance policy as payable when the insured passes away or when the policy matures.
Fee Schedule – A listing of fixed allowances or accepted fees for specific medical procedures. Used in medical care plans, it usually represents the maximum amounts the program will pay for those specified procedures.
Fixed Annuity – An annuity, either immediate or deferred, where the deposits expand at a fixed rate of interest or immediate payments remain constant for the duration of the contract.
Flexible Premium Deferred Annuity (FPDA) – An annuity that grants annual premium payments in amounts considered suitable by the policyowner; also referred to as a 403(b) annuity from the section of legislation.
Fraternal Insurer – A mutual insurer that provides coverage to members of charitable, religious, and fraternal organizations.
General Account – An aggregation of all an insurer's assets except those allocated to a separate account.
General Agency System – A life insurance-specific marketing system in which an agent has accountability for a given geographic area.
Generally Accepting Accounting Principles (GAAP) – Accounting standards instituted by the American Institute of Certified Public Accountants or the Financial Accounting Standards Board and in other recognized accounting literature.
Grace Period – A specified period of time provided for the payment of an overdue premium before a policy will lapse.
Group Annuity – A pension plan administered on a group basis, typically for employees within a distinct business organization, under which annuities are provided upon retirement.
Group Deferred Annuity – As opposed to a single annuity for each employee, a contract for retirement benefits in which an entire group of employees is underwritten.
Group Life Insurance – Life insurance provided on a group basis, typically for employees within a specific business organization, through one master policy.
Guaranteed Purchase Option – A provision in a life insurance policy that grants the insured an option to purchase additional life insurance without evidence of insurability.
Guaranteed Renewable – A provision in a health insurance policy that grants the insured a policy renewal option for a specified period of time.
Guarantor – An entity, like an insurer, that promises to pay an obligation if the obligor fails to do so.
Home Office – An insurer’s official headquarters.
Immediate Annuity – An annuity on which payment begins one period (between 30 days and one year) after purchase.
In Force – The aggregated amount of insurance in effect as of the policy’s effective date for the insurer.
Inception Date – The date when a policy’s coverage officially commences.
Incontestable Clause – A provision in a life insurance policy ensuring that the insurer cannot fight a policy once it has been in force two years through an insured's lifetime.
Indemnification – Compensating an insured for losses suffered.
Indemnitee – The insured individual who is being compensated for their losses.
Indemnitor – The insurer who is providing indemnification to someone suffering a loss.
Independent Agent – An agent who is not employed by a specific insurer, but who typically represents a number of insurers.
Independent Agency System – The system in which self-governing contractors are given the right to sell insurance products by insurers.
Inside Build-Up – The tax-deferred accumulation value of annuity contracts and permanent life insurance policies.
Insurability – The available coverage for an individual applying for insurance.
Insurable Interest – The principle that states an insured individual must suffer an actual loss in order to legally make a claim under their insurance policy.
Insurance – An agreement in which an insured pays a premium to an insurer and transfers risk and obligations to said insurer.
Insured – An individual who purchases insurance (policyowner) or one who enjoys protection under an insurance policy.
Insured Life – The individual policyowner on whose life a life insurance policy is issued.
Insurer – An individual or entity that provides insurance.
Interest-Sensitive Life Products – Life insurance policies in which interest earned in excess of a specified amount is credited to the policy.
Intermediary – An agent, broker or other entity through which insurance arrangements are established between insureds and insurers.
Invested Assets – An insurance company’s owned assets that are invested in cash, bonds, common and preferred stock, mortgages and real estate.
Investment Expense Ratio – The calculated ratio of a particular insurer's investment expenses to net premiums earned.
Investment Expenses – Expenses incurred by an insurer in conjunction with the management of its investment portfolio.
Investment-Grade Securities – Fixed-income securities held in an insurer's investment portfolio with a Class (2) or higher rating by the Securities Valuation Office of the National Association of Insurance Commissioners.
Irrevocable Beneficiary – The beneficiary for a life insurance policy that cannot be changed by the owner without the beneficiary’s consent.
Irrevocable Trust – Non-amendable trust which is both the owner and beneficiary of one or more life insurance policies. Upon the insured’s death, the trustee invests the insurance proceeds and administers the trust for its beneficiaries.
Joint and Survivor Benefits – Annuitized payments that present a guaranteed monthly payment for the rest of an insured’s lifetime and that ensure income to a surviving spouse.
Key Man Life Insurance – A kind of life insurance policy that preserves a business organization from losses arising from the death or disability of a senior executive or other employee critical to the business’s success.
Lapse – Terminatng an insurance policy due to failure to secure premium payments or lack of sufficient cash value to maintain the policy's in-force status.
Lapse Ratio – The face amount of in-force business that lapses in a particular year, measured as a percentage of in-force business at the beginning of the year.
Last to Die – A type of life insurance policy used as an estate planning device in which the benefit is due upon the second death to occur of two insured lives.
Level Premium Life Insurance – A type of life insurance in which premium levels remain constant throughout the life of the contract. In said policy, more than the cost of protection is paid in earlier years to compensate for underpayment in later years.
License – Certificate of authority issued by a state to an insurance agent or insurer granting permission to act as such within that state.
Life Annuity – A type of annuity that generates income during the annuitant's lifetime.
Life Expectancy – An estimated average number of years of life remaining for a group of individuals of a specific age, as defined in a mortality table.
Life Insurance – A type of insurance on the life of a human being that includes related coverages.
LIMRA International – Previously known as Life Insurance Marketing and Research Association, it's a trade organization based in Farmington, Connecticut that contributes research for the life insurance industry.
Life Settlement – The sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit.
Living Benefits Rider – A voluntary provision within a life insurance policy that allows the insured an option to collect all or a portion of available life insurance benefits in the event of terminal or other catastrophic illness.
Loss Ratio – The estimated ratio of acquired losses and loss adjustment expenses to earned premiums.
Lump Sum – Money issued in a single payment rather than being broken out in installments.
Lump Sum Distribution – A specifed contribution plan participant's taking the assets in their account as a single sum, instead of as an annuity.
Managing General Agent (MGA) – An agent who produces and underwrites business for an insurer and either modifies or pays claims or negotiates reinsurance on the insurer’s behalf.
Mature – A life insurance policy whose face amount has become payable.
Mortality Table – A statistical listing of life expectancy for various age groupings, normally expressed as deaths per thousand.
Mutual Insurance Company – An insurance company owned by its policyowners unlike a stock insurance company, which is owned by its stockholders.
Named Insured – The insured specifically referred to in an insurance policy as one covered by the protections under the policy.
National Association of Insurance Commissioners (NAIC) – Founded in 1871, an organization based in Kansas City, Missouri of state insurance commissioners who study insurance regulatory affairs and assist state insurance departments in enacting their regulatory responsibilities.
National Association of Life Companies (NALC) – A trade organization based in Washington, DC that only represents smaller life insurers.
National Association of Mutual Insurance Companies (NAMIC) – A trade organization based in Indianapolis, Indiana representing mutual property-casualty insurers.
Natural Death – A death that is unrelated to an accident or war.
Negligence – Failure to act as a prudent and reasonable person would under similar circumstances.
Non-Investment-Grade Securities – Any debt or equity security having a long term unsecured rating of "B" or lower or an equivalent thereof from a rating agency such as Standard & Poor's Corporation or Moody's Investors Service, Inc. or another comparable service approved by the Lenders.
Nonparticipating Policy – A policy that does not entitle a policyowner to receive dividends from the insurer’s surplus.
Nonstandard Risk – A policyowner with above-average loss experience and higher-than-average loss frequency potential; used most often to refer to purchasers of automobile insurance.
Ordinary Life Insurance – Whole life insurance for which premiums are paid throughout the insured's lifetime.
Paid-up Insurance – An insurance policy for which all required premiums payments have been issued.
Participating Policy – A policy that entitles a policyowner to receive dividends from the surplus of an insurer to the extent that dividends are declared by its board of directors.
Periodic Payment – Payments made on a recurring interval (weekly, monthly, etc.) over the life of a benefit plan.
Permanent Life Insurance – Any form of life insurance with the exception of term insurance.
Persistency – The rate of renewal for insurance policies. A high persistency rate means that the bulk of policies stay in force until the end of the policy term; a low persistency rate means that a majority of policies lapse.
Policy – An annuity contract or insurance policy issued by an insurer.
Policy Acquisition Costs – Direct expenses linked to an insurer's acquisition and retention of business, including brokers’ and agents' commissions, premium taxes, and marketing and underwriting expenses.
Policy Loan – A provision in a life insurance policy allowing the policyowner the right to borrow the policy's cash value.
Policyholder/Policyowner – An individual or entity in whose name an insurance policy has been issued.
Policyholder Dividend – The surplus payable to a policyowner as declared by an insurer's board of directors.
Policyholders' Surplus – The money remaining after an insurer's liabilities are subtracted from its admitted assets, applying statutory accounting practices.
Portfolio Transfer – The cession of a book of business—for example, for an insurer withdrawing from writing a certain class of risk. Since the business has already been written, it is retroactive insurance, so it is a balance sheet only transaction (transfer of assets and liabilities).
Preferred Risk – An insurable interest predicted to have a better or lower-than-average loss experience; generally, pay lower premiums than standard risks.
Premium – Payment issued to an insurer in consideration of the insurance coverage being provided.
Premium Financing – The strategy by which a qualified borrower accesses third-party financing to pay for hefty life insurance premiums.
Primary Beneficiary – An individual entitled to receive the proceeds of a life insurance policy on a priority basis.
Proceeds – Payable amount from an insurance policy.
Producer – Someone who originates insurance business such as an agent.
Pure Risk – A risk that a loss may or may not occur but will certainly not result in a gain; as opposed to a speculative risk, which could possibly result in either a loss or a gain.
Qualified Annuity – Products whose deposits or premiums can be made with pretax dollars.
Rated Policy – An insurance policy published at a higher premium rate to include risks that can be potentially severe.
Rating Agencies – Organizations that provide credit opinions and analysis of financial institutions, including insurers.
Reinstatement – The process by which a lapsed policy is restored by the issuing payment for an overdue premium.
Reinsurance – An arrangement in which the insurer transfers risk and obligations to a different insurer.
Reinsurer – The insurer that assumes reinsurance risk.
Renewable Term Insurance – Term life insurance that's renewable for a specified number of additional terms by the policyowner without evidence of insurability.
Return Premium – Premium that has been issued to an insurer but has not been earned and is returned to the insured when the policy is canceled or the terms of the policy are modified, thus reducing the amount of premium due.
Revocable Beneficiary – The beneficiary under a life insurance policy whose designation as beneficiary can be changed at the discretion of the policy owner without said beneficiary’s consent.
Risk – The possibility of loss.
Risk Transfer – The process by which one party transfers responsibility for losses to another party, such as from an insured to an insurer.
Separate Account – An investment account maintained by an insurer to which funds have been allocated; a separate account is maintained independently from an insurer's general account and other separate accounts.
Single-Premium Deferred Annuity (SPDA) – An annuity that requires a one-time lump sum premium payment upon commencement of the contract.
Split Dollar Life Insurance – A type of whole life insurance in which two individuals, typically an employer and employee, share the responsibility of paying premiums.
Straight Life Insurance – Standard, ordinary life insurance.
Suicide Clause – A provision in a life insurance policy stating that an insurer will not pay any claims within a policy if the insured commits suicide within two years after the policy is issued. Instead, the premium is returned.
Surrender – The withdrawal of a life insurance policy’s cash value.
Surrender Charge – The fee charged to a policyowner when their life insurance policy or annuity contract is surrendered for its cash value.
Term – The period of time for which an insurance policy is effective and in force OR a provision within a life insurance policy.
Term Life Insurance – Life insurance protection that pays the sum insured if and only if the insured dies within the coverage terms of the policy.
Third-Party Administrator (TPA) – A service provider engaged in administrative, clerical and managerial responsibilities related to insurance policies and/or employee benefit plans.
Underwriter – An employee of an insurance company whose responsibilities include reviewing applications submitted for insurance coverage, deciding whether to accept or reject all or part of the coverage requested and adjusting the terms of coverage.
Underwriting – The process by which applications for insurance coverage are reviewed, determining whether to accept or reject all or part of the coverage requested and adjusting the terms of coverage.
Underwriting Expense – Administrative, general and other expenses accrued by an insurer's underwriting operations.
Unearned Premiums – The portion of an insurer's premiums attributable to the unexpired period of policies.
Unisex Rating – A rating formula required in particular jurisdictions that forbids the use of sex as a separate rating factor.
Universal Life Insurance – A flexible-premium life insurance policy that permits the policyowner to modify the death benefit and change the amount or timing of premium payments.
Variable Annuity – An annuity under which the annuitant's payments will change, dependent on the results of an investment portfolio or according to a formula prescribed in the annuity contract.
Variable Life Insurance – Life insurance policies under which the benefits will vary, depending upon the investment experience of a separate account supporting said policy.
Viatical Settlement Companies – Companies that arrange life settlements via cash payments for the life insurance of terminally ill policyowners.
Waiver of Premium Provision – A provision within a life insurance policy guaranteeing that, upon the total disability of the insured, the premium payments shall be waived.
Whole Life Insurance – Permanent life insurance offering guaranteed death benefits and cash values.