accelerated benefits
Some companies provide "accelerated benefits," also known as "living benefits." This rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home.

accidental death benefit (ADB) rider
A supplementary benefit rider or endorsement that provides for an amount of money in addition to the basic death benefit of a life insurance policy. This additional amount is payable only if the insured dies as the result of an accident.

accumulated value
An amount of money invested plus the interest earned on that money.

accumulation period
The period during which premiums are payable on a deferred annuity

accumulation units
The term used to identify ownership shares in a variable annuity's separate-account fund. When a person pays premiums for a variable annuity, those premiums are credited to the purchaser's account as a certain number of accumulation units. After the accumulation period ends, the accumulation units are used to buy annuity units. See also annuity units.

actuary
A technical expert in life insurance, particularly in mathematics. A person in this job applies the theory of probability to calculate mortality rates, morbidity rates, lapse rates, premium rates, policy reserves, and other values.

agent-brokers
Career agents who place business with companies other than their primary companies. Also known as agents of other companies, surplus brokers, or simply brokers

agent's statement
The portion of the insurance application in which the agent reports anything he or she knows or suspects about the proposed insured that is not reported by the applicant or proposed insured

allocated funding
A method of funding a pension plan in which a portion of the total plan funds is allocated to each participant. This type of funding is often achieved through the purchase of annuities or insurance contracts for each participant. Contrast with unallocated funding

annuitant
(1) The person designated to receive annuity payments. (2) The person whose lifetime is used as the measuring period to determine how long benefits are payable under a life annuity.

annuity
(1) A series of payments made or received at regular intervals. (2) A contract that provides for a series of payments to be made or received at regular intervals. There are many kinds of annuities. For the annuities identified in this glossary, see annuity certain, annuity due, annuity immediate, deferred annuity, deferred life annuity, disabled life annuity, flexible premium annuity, group deferred annuity, immediate annuity, joint and survivor annuity, level premium annuity, life annuity, life annuity with period certain, refund annuity, single premium annuity, single premium deferred annuity (SPDA), straight life annuity, temporary life annuity, temporary life annuity due, variable annuity, whole life annuity, and whole life annuity due.

annuity certain
An annuity that provides a benefit amount payable for a specified period of time regardless of whether the annuitant lives or dies.

annuity due
A series of payments in which the payments are made at the beginning of each interval of time.

annuity immediate
A series of payments in which the payments are made at the end of each interval of time.

annuity mortality table
A tabulation of probabilities of dying at each age. Used by actuaries to calculate premiums and reserves for annuities in which benefits are paid only if a designated person is alive. Annuity mortality tables usually project lower rates of mortality than do mortality tables that are used for life insurance. See also mortality tables.

annuity period
The time between each benefit payment made under an annuity contract.

annuity units
The term used for ownership shares in a variable annuity's separate-account fund after the accumulation period has ended. Annuity units are bought with accumulation units and are used to determine benefit payment amounts. See also accumulation units.

applicant
The party applying for an insurance policy.

application
A form that must be completed by an individual or other party who is seeking insurance coverage. This form provides the insurance company with much of the information it will need to decide whether to accept or reject the risk.

assets
All things of value owned by an individual or organization. Examples of assets include cash, data processing equipment, and investments. Assets are shown on the balance sheet of a life insurance company's Annual Statement as required by law or by insurance department ruling.

attained age
The current age of the insured. The age of the insured at the time the insured's policy was issued plus the number of years elapsed since the policy was issued.

attained age conversion
The changing of a life insurance policy from one form of insurance to another (such as from term life insurance to whole life insurance) at a premium rate that is based on the age the insured person has reached at the time the change takes place.

Attending Physician's Statement (APS)
A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim

aviation exclusion
A life insurance contract provision which specifies that the death benefit is not payable if the insured dies as a result of certain aviation activities.

back-dating
Making the effective date of an insurance policy earlier than the date of the application so that the premium rate will be lower. State law usually limits back-dating to not more than six months. Also called dating back.

basic death benefit
The death benefit according to the terms of the original, basic contract of a life insurance policy. The basic death benefit does not include the benefit for any supplementary riders, such as an accidental death benefit (ADB) rider. For policies whose death benefit remains constant, the basic death benefit is equivalent to the face amount. Compare to death benefit and policy proceeds.

basic services
Under dental insurance, dental services, such as fillings, periodontics, and oral surgery, which are often covered at 80 percent of their reasonable and customary charges.

beneficiary
The person or other party designated to receive life insurance policy proceeds. See also contingent beneficiary, irrevocable beneficiary, primary beneficiary, and revocable beneficiary. benefit
The amount of money paid when an insurance claim is approved. Also called the policy benefit.

benefit of survivorship
Describes the fact that annuity payments will be made as long as the designated recipient is alive at the time the payment is due. This concept is used in the calculation of amounts due under life insurance settlement options.

benefit schedule
Under a group insurance plan, a table or schedule which specifies the amount of coverage provided for each class of insured. Insureds are often classified with reference either to earnings or to rank or position. Also known as schedule of benefits.

binding premium receipt
A type of initial premium receipt that makes insurance coverage effective immediately but only until the insurance company either rejects the application or approves it and issues a policy. Compare to conditional premium receipt. .

broker
An insurance salesperson agent who sells insurance products for more than one insurance company

broker-dealer
A firm that provides information or advice to its customers regarding the sale and/or purchase of securities and that serves as a financial intermediary between buyers and sellers by manufacturing or acquiring securities in order to market them to its customers.

business-continuation insurance
A type of business insurance designed to provide funds so the remaining partners in a business, or the remaining stockholders in a closely-held corporation, can buy the business interest of a deceased or disabled partner or stockholder. See also partnership insurance and stock repurchase insurance.

business insurance
Insurance that is intended to serve the insurance needs of a business rather than the needs of an individual.

Buyer's Guide
In the United States, a publication that many states require insurance companies to give to an applicant for life insurance. The Buyer's Guide helps the applicant make an informed choice among policies.

cafeteria plan
An employee benefit plan which gives each employee several choices as to the types and/or amounts of group benefits. Also known as a flexible benefit plan.

career agent
A full-time commissioned salesperson who works out of an insurance company's field office, holds an agent contract with that company, and sends all, or almost all, of his or her business to that company. A career agent may occasionally broker business with other companies.

carry-over provision
A provision found in most medical expense policies stating that expenses incurred during the last three months of a benefit period that are used to satisfy the current benefit period's deductible may be used to satisfy any or all of the following benefit period's deductible.

cash refund option
A form of the life income option with refund which specifies that any proceeds remaining when the beneficiary dies will be paid in a lump sum to the contingent payee. Contrast with the installment refund option.

cash surrender value
In a life insurance policy, the amount of money, adjusted for factors such as policy loans or late premiums, that the policy owner will receive if the policy owner cancels the coverage and surrenders the policy to the insurance company. Also called the net cash value. Compare to cash value.

cash surrender value option
A life insurance policy nonforfeiture option which specifies that a policy owner who discontinues premium payments can elect to surrender the policy and receive the policy's cash surrender value.

cash value
In a life insurance policy, the amount of money, before adjustment for factors such as policy loans or late premiums, that the policy owner will receive if the policy owner allows the policy to lapse or cancels the coverage and surrenders the policy to the insurance company. Cash values are a feature of most types of permanent life insurance, such as whole life and universal life. Compare to cash surrender value. Also called inside build-up and policy owner's equity.

certificate of insurance
A document given to each person insured by a group insurance plan. This document shows the type and amount of coverage to which the group member is entitled and the beneficiary of the coverage. The certificate may also contain a summary of the contract terms as they affect individual group members. See also master contract.

claim
A request for payment under the terms of an insurance policy.

claim examiner
An employee of an insurance company whose responsibilities include investigating claims, approving the claims that are valid, and denying those that are invalid or fraudulent.

claim investigation
The process of obtaining necessary claim information in order to decide whether or not to pay a claim.

COBRA
The Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA, requires group health plans with 20 or more employees to offer continued health coverage for you and your dependents for 18 months after you leave your job. Longer durations of continuance are available under certain circumstances. If you opt to continue coverage, you must pay the entire premium, plus a two percent administration charge.

coinsurance
The amount you are required to pay for medical care in a fee-for-service plan or preferred provider organization (PPO) after you have met your deductible. The coinsurance rate is usually expressed as a percentage of charges. For example, if the insurance company pays 80 percent of the claim, you pay 20 percent. .

combination dental plan
A dental plan which contains features of both scheduled and nonscheduled plans. Typically, combination plans cover preventive and diagnostic procedures on a nonscheduled basis and other services on a scheduled basis. See also nonscheduled dental plan and scheduled dental plan.

comprehensive major medical insurance
A form of health insurance coverage that combines the features and benefits of a hospital-surgical expense policy and the features and benefits of a major medical policy.

conditional premium receipt
A type of premium receipt given when the applicant pays the initial premium and under which life insurance will become effective before a policy is issued only if the proposed insured is found to be insurable. Also called a conditional receipt. Compare to binding premium receipt. See also approval type temporary insurance agreement and insurability type temporary insurance agreement.

consumer report
As defined by the Fair Credit Reporting Act, a consumer reporting agency's communication of any information pertaining to an individual consumer's creditworthiness, credit standing, credit capacity, general reputation, or personal characteristics.

contestable period
The period of time (usually two years) during which an insurer may challenge the validity of a life insurance policy. See also incontestable clause.

contingent beneficiary
The party designated to receive life insurance policy proceeds if the primary beneficiary should die before the person whose life is insured. Also called the secondary beneficiary or the successor beneficiary.

conversion privilege
(1) The right of a person who is covered by a group insurance policy to convert his or her group coverage to coverage under an individual insurance policy. Such a conversion can be made when a person leaves the group, benefits are downgraded or terminated for a specific class, or when the group master policy is ended. (2) The right to change insurance coverage in certain prescribed situations from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.

convertible term insurance
A type of term insurance that allows the policy owner to change the term insurance policy to a whole life policy without providing evidence of insurability. The premium rate is normally based on the age of the insured at the time of the conversion.

copayment
A cost sharing arrangement in which a person pays a specific charge for a specific medical service -- say $20 for an office visit or $10 for a prescription.

death benefit
The amount of money paid or due to be paid when a person insured under a life insurance policy dies. This amount does not include adjustments for outstanding policy loans, dividends, paid-up additions, or late premium payments. See also basic death benefit and policy proceeds.

death claim
A request for payment under the terms of a life insurance policy.

deductible
The amount of money you must pay up front each year to cover your medical care expenses before your insurance policy starts paying.

deferred annuity
(1) A series of payments in which the first payment is postponed (deferred) for one or more periods. (2) An annuity contract under which premiums are accumulated at interest but the annuity payment period is postponed (deferred) for one or more periods. See also deferred life annuity and group deferred annuity.

deferred compensation plan
A plan established by an employer to provide benefits to an employee at a later date, such as after the employee's retirement.

deferred life annuity
A deferred annuity that provides a series of payments, each of which is made only if a designated person is alive.

Deferred Profit Sharing Plan (DPSP)
In Canada, a type of profit-sharing plan in which employer contributions, up to certain limits, are tax deductible for the employer and tax deferred for the employee, and in which the employee can withdraw the benefit before retirement. The ways that plan funds can be invested are restricted. See also profit-sharing plan.

defined benefit formula
A formula used to determine the periodic payment amounts that each participant in a defined benefit pension plan will receive at retirement. The benefit amount is often related to number of years of participation in the plan.

defined benefit pension plan
A pension plan that specifies the benefits that the plan promises to pay to a participant upon retirement, with the benefits determined according to a specified formula. Contrast with defined contribution pension plan.

defined contribution formula
A formula that describes the amount of money that will be deposited into a pension plan each year on behalf of each plan participant. Usually, the contribution is a specified percentage of the participant's compensation.

defined contribution pension plan
A pension plan that specifies the amount of annual contributions that the plan sponsor will make on behalf of a plan participant. A defined contribution plan does not guarantee a specific amount of retirement benefits. A participant's benefits at retirement are based on the amount that has been contributed to the participant's account, plus investment earnings. Contrast with defined benefit pension plan.

dental maintenance organization
An organization like an HMO which provides only dental care.

disability
Inability to work due to an injury or sickness. See also partial disability, presumptive disability, and total disability.

disability benefits
Benefits that are payable periodically while an insured continues to be disabled. "Being disabled" is generally defined in terms of inability to work.

early retirement age
An age specified in a pension plan that is earlier than the plan's normal retirement age but at which a plan participant can still receive an immediate pension benefit. The benefit received at early retirement is usually actuarially reduced from the amount that would have been received had retirement occurred at the normal retirement age. See also late retirement age and normal retirement age.

election period
A 60-day period following notification of an insured's eligibility for COBRA continuation coverage, during which the individual can accept or decline the coverage.

eligibility period
In contributory group insurance plans, the period of time, usually 31 days, during which a new employee may apply for group insurance coverage.

eligibility requirements
The conditions a person must meet in order to be a participant in a group life insurance, group health insurance, or retirement plan.

elimination period
1) In medical expense insurance, a prescribed amount of time following policy issue during which the insured's medical expenses are not covered by the policy. Such waiting periods usually last from 14 to 30 days following policy issue and normally apply only to medical expenses arising from sickness, not from accidents. (2) In disability income insurance, a specified amount of time, beginning with the onset of the disability, during which benefits are not payable. Such waiting periods may last from seven days to six months. The waiting period in a disability income insurance policy is sometimes called the elimination period or the probationary period. (3) In a group insurance plan, the length of time that a new group member must wait before being eligible to join the group plan. Also called a probationary period.

employee contribution
The amount of the premium that a group member pays in a contributory group insurance plan. Also known as employee contribution or member contribution. See also contributory group insurance

Employee Retirement Income Security Act of 1974 (ERISA)
A United States federal law establishing (a) the rights of pension plan participants, (b) standards for the investment of pension plan assets, and (c) requirements for the disclosure of plan provisions and funding. ERISA also established the Pension Benefit Guaranty Corporation (PBGC).

endorsement
An amendment to an insurance policy that becomes a part of the insurance contract and expands or limits the benefits payable. Also called an endorsement.

endowment insurance
A type of life insurance that provides a benefit (a) if death occurs during a specified number of years or (b) if, at the end of the specified number of years, the insured is alive.

error and omissions (E&O) insurance
Insurance designed to cover claims that result from the negligent acts or mistakes of an agent, including (1) his or her vicarious liability stemming from negligent acts or (2) mistakes committed by individuals for whom the agent is legally liable.

estate planning
An insurance program designed not only to provide funds for the prospect's dependents upon the death of the prospect, but also to conserve, as much as possible, the personal assets that the prospect wants to bequeath to heirs. Estate planning usually involves accountants, lawyers, and the trust officers of banks, as well as insurance agents.

evidence of insurability
Proof that a person is an insurable risk.

exclusion rider
An attachment to a health insurance policy that excludes or limits coverage for a specific health impairment. Also called an exclusion rider or impairment waiver.

exclusions
Specific conditions or circumstances for which the policy will not provide benefits.

exclusive agents
Career agents who are under contract with one insurance company only and who are not permitted to sell the products of other insurers. Also known as captive agents.

extended term insurance option
A nonforfeiture option in which the cash value of a policy is applied as a net single premium to purchase paid-up term insurance. The amount of term insurance is equal to the death benefit of the policy being surrendered less any outstanding policy loans. The insured maintains the same amount of coverage but usually for a shorter period of time than the original coverage. See also nonforfeiture options.

face amount
In a life insurance policy whose benefit is not variable, the amount stated as payable at the death of the insured or (in the case of an annuity) at the maturity of the contract. It is generally shown on the first page of the policy. Also called the face value. See also basic death benefit, death benefit, and policy proceeds.

Fair Credit Reporting Act (FCRA)
A United States federal law designed to help ensure that consumer reporting agencies act fairly, impartially, and with respect for the consumer's right to privacy when preparing consumer reports on individuals. See also consumer reporting agency.

federally qualified HMO
In the United States, a Health Maintenance Organization which satisfies specific requirements set forth in the Health Maintenance Organization Act of 1973. Federally qualified HMOs are entitled to certain grants and loans from the federal government and are eligible to be used by employers to satisfy the dual choice provision.

fee-for-service
A payment system for health care where the health-care provider is paid for each procedure or service rendered.

fee schedule
A schedule or list of maximum benefits that will be paid under a group medical contract for certain listed procedures. See also relative value schedule. May simply be called a schedule.

fee schedule basis
A compensation plan used in health maintenance organizations (HMOs) and preferred provider organizations (PPOs) in which a physician is paid a predetermined amount for each service that the physician provides. See also capitation basis.

fiduciary
A person or organization who holds, manages and has discretionary authority and control over money belonging to another person or organization, or who renders investment advice in exchange for compensation. When an insurance company manages pension funds, the insurance company is acting as a fiduciary.

field underwriting
The first step in the risk selection process. Field underwriting occurs when an agent gathers pertinent information about the proposed insured and reports that information on the application blank so the home office underwriter can make an underwriting decision. An organization that helps to channel funds through an economy by accepting the surplus money of savers and supplying that money to borrowers, who pay to use the money. Insurance companies are financial institutions.

flexible premium annuity
A deferred annuity that gives the purchaser the right to vary the amount of each premium paid to the insurer during the accumulation period.

fraudulent claim
A type of claim that occurs when a claimant intentionally uses false information in an attempt to collect policy proceeds.

fraudulent misrepresentation
According to common law, a false statement which meets the following three criteria: (1) the party that makes the statement is aware that it is not true or disregards whether it is true; (2) the party that makes the statement does so in order to induce another party to enter into a contract; (3) the other party does enter into a contract as a result of the statement and suffers a loss because of the contract.

free examination period
The period of time after delivery of an insurance policy during which the policy owner may review the policy and return it to the company for a full refund of the initial premium. Full coverage is in force during this period. Also called a ten-day free look.

front-loaded policy
A life insurance policy (usually a universal life insurance policy) in which most of the expense charges take the form of deductions from each premium payment. Such deductions continue throughout the premium payment period. See also back-loaded policy and universal life insurance.

general agent (GA)
The individual in charge of a field office of an insurer that uses the general agency distribution system. The general agent is an independent entrepreneur who is under contract to the insurer.

good health provision
A provision contained in some group credit policies stating that a policy is void if the insured was not in good health when the application was signed or when the policy was delivered, whichever was specified in the contract.

grace period
The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time.

gross premium
The amount that policy owners actually pay for their insurance. The gross premium equals the net premium plus the loading.

group insurance
Insurance that provides coverage for several people under one contract, called a master contract.

group life insureds
the persons who are insured by a group life insurance contract. Usually simply called "insureds.

group ordinary life insurance
Group life insurance in which at least a part of the coverage is permanent and builds a cash-value.

guaranteed renewable policy
An individual health insurance policy that specifies that the insurer will continue the policy until the insured reaches a specified age, if premium payments are made when due. The insurer can change premium rates for broad classes of insureds. y.

guaranty association
In the insurance industry, an organization whose purpose is to protect policy owners from losses suffered through the insolvency of an insurance company.

health insurance
Insurance covering medical expenses or income loss resulting from injury or sickness. Health insurance is a general category that includes many different types of insurance coverage, including hospital confinement insurance, hospital expense insurance, surgical expense insurance, major medical insurance, disability income insurance, dental expense insurance, prescription drug insurance, and vision care insurance. See also disability income insurance and medical expense insurance.

health maintenance organization (HMO)
Prepaid health plans in which you pay a monthly premium and the HMO covers your necessary medical treatment. You must choose a primary care physician from within the network to coordinate all of your care. All specialty referrals need to be authorized by your primary care physician.

history statement
An Attending Physician's Statement concerning a specific health history admitted by the proposed insured.

illness perils
A classification used by health insurance underwriters to evaluate the type and degree of peril represented by a particular occupation. Illness perils include exposure to dust, poisons, and extreme temperatures. See also accident perils.

immediate annuity
An annuity under which income payments begin one period after the annuity is purchased.

impairment
Any aspect of the health, occupation, activities, or life-style of a proposed insured that could increase his or her expected mortality or morbidity.

impairment rider
An attachment to a health insurance policy that excludes or limits coverage for a specific health impairment. Also called an exclusion rider or impairment waiver.

implied authority
The authority that a principal intends an agent to have and that arises incidentally from an express grant of authority. See agent and principal. Compare to apparent authority and express authority.

income replacement ratio
The percentage of preretirement income that a retiree would need to receive after retirement in order to have a postretirement standard of living equivalent to his or her preretirement standard of living. This ratio is generally less than 100 percent, because some of an individual's expenses (i.e., taxes, commuting costs, clothing expenditures, savings needs) decrease after retirement. Also known as the replacement ratio.

incontestable clause
Life insurance policy clause that provides a time limit (usually two years) on the insurer's right to dispute a policy's validity based on material misstatements made in the application. See also contestable period.

indemnity
A type of contract in which the amount of the benefit to be paid is based on the actual amount of financial loss as determined at the time of loss. For example, many hospital expense insurance contracts are contracts of indemnity. See also valued contract

independent life brokers
Licensed brokers who operate independently and specialize in selling particular types of products or in meeting the business coverage or estate planning needs of certain target markets.

independent property/casualty (P/C) brokers
Independent, multiple-line agents or agencies that are primarily engaged in the distribution of property/casualty products and that make up what is commonly known in the property/casualty insurance industry as the independent agency system or the American Agency System.

indexed life insurance
A whole life plan of insurance that provides for the death benefit of the policy and, consequently, the premium rate to increase automatically every year in accordance with any increase in the Consumer Price Index (CPI).

individual fraud
A type of medical insurance fraud committed by individuals on their medical expense claims in order to obtain benefits in excess of their medical expenses. Contrast with provider fraud.

individual insurance
Insurance that is issued to an individual person, as contrasted with group insurance. Also called ordinary insurance. See also ordinary life insurance.

individual retirement account (IRA)
In the United States, a tax-sheltered savings plan that allows some citizens to make pre-tax contributions to an approved account. The contributions and investment earnings are taxable as income only when paid out. Investors can establish IRAs through a number of financial institutions, including insurance companies. See also Keogh Act and simplified employee pension (SEP).

initial premium
The first premium payable for an insurance contract.

inspection report
A report made by a consumer reporting agency concerning a proposed insured's lifestyle, occupation, and economic standing. An inspection report is considered an investigative consumer report, as defined by the Fair Credit Reporting Act. See also investigative consumer report.

insurable interest
A condition in which the person applying for an insurance policy and the person who is to receive the policy benefit will suffer an emotional or financial loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful purpose and, thus, is void from the start.

insurance
A system of protection against loss in which a number of individuals agree to pay certain sums of money, called premiums, to create a pool of money which will guarantee that the individuals will be compensated for losses caused by events such as fire, accident, illness, or death.

insurance agent
A representative of an insurance company who sells insurance. An insurance agent locates prospective insurance customers, determines the insurance needs of each customer, and assists the customer in applying for insurance. Typically, an insurance agent will deliver the policy when the application is approved, will collect the initial premium, and will provide customer service to policy owners. Also called an agent, a field underwriter, or a life underwriter. See also broker, detached agent, general agent (GA), personal producing general agent (PPGA), and soliciting agent.

insurance trust
A common form of trust, created during the lifetime of the person who creates the trust, that is funded by insurance policies on the life of the trust's creator or by the proceeds of such policies.

insured
(1) In the United States and Quebec, a person whose life is insured by an insurance policy (for individual life insurance policies, called the life insured in the rest of Canada). (2) In the common law provinces of Canada, the owner of an individual life insurance policy (called the policy owner in the United States and the policyholder or owner in Quebec). (For the purposes of this glossary, we have used this term as it is used in the United States and Quebec, except in the definitions of purely Canadian terms, in which cases we have made it clear that we are using the term as it is used in Canada.)

insurer
The party in an insurance contract that promises to pay a benefit if a specified loss occurs. Usually an insurance company.

integrated deductible
A type of deductible included in some major medical expense plans that can be satisfied by amounts paid by the insured under basic medical expense plans. Contrast with corridor deductible.

integrated dental plan
A dental plan which is part of a major medical policy.

investigative consumer report
As defined by the Fair Credit Reporting Act, a consumer report that uses interviews with persons who are associated with, or who have knowledge of, the consumer in question in order to solicit information regarding the consumer's character, mode of living, or general reputation. See also inspection report.

investment-sensitive insurance
A general category of insurance products in which the death benefit and the cash value vary according to the insurer's investment earnings. In investment-sensitive insurance products, policy owners share a portion of the insurer's investment risk. The exact benefit amounts for these policies cannot be computed in advance, beyond any guaranteed minimums. The specific products that make up this category of insurance include variable annuities, variable life insurance, and variable universal life insurance. Also called interest-sensitive insurance.

irrevocable beneficiary
A beneficiary whose rights to the proceeds of a life insurance policy cannot be cancelled by the policy owner unless the beneficiary consents. .

joint life and last survivor option (JL&S)
In Canada, a pension plan provision which provides for the continuation of pension benefits to the spouse of a retired plan participant after the death of the participant. The survivor's benefits, which usually are not as large as the original benefits, continue until the death of the spouse. The provision is required in most Canadian jurisdictions, unless the participant (with spouse approval) elects to forego it. A very similar provision, called a qualified joint and survivor (QJ&S) annuity, is required in the United States for qualified pension plans.

joint whole life insurance policy
One insurance policy that covers two lives and that generally provides for payment of the proceeds at the time of the first insured's death.

juvenile insurance policy
A life insurance policy purchased by an adult to cover the life of a child

Keogh Act
In the United States, the unofficial name for the Self-employed Individuals Tax Retirement Act of 1962. The Keogh Act created a mechanism for self-employed people to save money for retirement. Under a Keogh plan, also called an H.R. 10 plan, an eligible person deposits money in a government-approved account that is managed by a financial institution, such as an insurance company or a bank.

key employee
In pension planning in the United States, a highly paid employee who satisfies any one of four criteria relating to compensation and company ownership. The criteria are described in legislation and tax rules. The amount of benefits accrued to key employees in a pension plan, as compared to benefits accrued to other employees, is the major factor in determining whether the plan is a top-heavy employee benefit plan. See top-heavy plan.

key-person insurance
Life insurance purchased by a business on the life of a person (usually an employee) whose continued participation in the business is necessary to the firm's success and whose death or disability would cause financial loss to the company

lapse
The termination of an insurance policy because premiums were not paid when they came due.

late retirement age
Retirement after the normal retirement age (usually age 65) contained in a pension plan. In the United States, a qualified pension plan generally cannot force a plan participant to retire at the normal retirement ge or any other age and generally cannot stop accruing pension benefits for a plan participant who elects to work beyond the normal retirement age. See also early retirement age and normal retirement age.

law of large numbers
The theory of probability which specifies that the greater the number of observations made of a particular event, the more likely it will be that the observed results will approximate the results anticipated by the mathematics of probability.

level premium annuity
A deferred annuity for which the purchaser of the annuity pays equal premium amounts at regular intervals, such as monthly or annually, until the date the benefit payments are scheduled to begin.

level premiums
Premiums that remain the same each year that the life insurance policy is in force.

level premium whole life insurance
A type of whole life insurance for which equal premiums are payable throughout the premium payment period.

level term insurance
A type of term insurance that provides a death benefit that remains the same during the period specified. Premiums for level term insurance policies usually remain the same throughout each term of coverage.

leveraged ESOP
An employee stock ownership plan (ESOP) that borrows money and uses the borrowed funds to buy stock of the employer. The employer then makes regular contributions to the plan on behalf of the participating employees. The ESOP uses this contributed money to pay back the loan and allocates the stock little by little to the employees. The employer's contributions are tax deductible for the employer and tax deferred for the employee.

liabilities
A company's debts and future obligations. For an insurance company, liabilities include amounts owed to creditors and the actual and expected claims of its policy owners and their beneficiaries.

liability insurance
A kind of insurance that provides a benefit payable on behalf of a covered party who is held legally responsible for harming others or their property.

licensed broker
An insurance salesperson who is not under an agency contract with any insurance company, and who is usually considered to be an agent of the client rather than of the insurer. Also known as a pure broker.

life annuity
A series of payments that are made at regular intervals as long as a designated person, the annuitant, is then alive.

life annuity with period certain
A life annuity which promises that if the annuitant dies before the end of a designated period (usually 5, 10, or 20 years), the insurer will continue payments to a contingent payee until the end of the designated period. Also called a life income with period certain annuity.

life insurance
Insurance that provides protection against the economic loss caused by the death of the person insured.

life insured
In the common law provinces of Canada, the person whose life is insured by an individual life insurance policy. Called the insured in the United States and Quebec. (For the purposes of this glossary, we have used the United States term "insured", except in definitions of purely Canadian terms, in which cases we have made it clear that "life insured" is a Canadian term.)

lifetime maximum
For any individual, the maximum amount that a medical expense policy will pay for all the eligible medical expenses the individual incurs while insured under the policy.

limited-payment whole life insurance
A type of whole life insurance that does not require premium payments during the entire lifetime of the insured. Some limited-payment policies specify the number of years during which premiums are payable, while other policies specify an age after which premiums are no longer payable. Single-premium whole life insurance, in which only one premium payment is made, is an extreme type of limited-payment insurance.

living benefit rider
A life insurance policy rider which allows the insured to receive all or part of the policy's death benefit before the insured's death if certain conditions are met. This type of provision is often used to help an insured pay health care costs if he or she becomes terminally ill.

living benefits
Some companies provide "accelerated benefits," also known as "living benefits." This rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home.

long-term care (LTC) insurance
Coverage available on an individual or group basis to provide medical and other services to patients who need constant care in their own home or in a nursing home.

long-term disability income insurance
Disability income insurance which typically provides disability income benefits that begin at the end of a specified waiting period and that continue until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pension benefits. See also disability income insurance and short-term disability income insurance.

maintenance expenses
The costs of keeping a policy in force. Maintenance expenses include the cost of processing premium payments and making policy dividend payments and the time that agents and customer service personnel spend in servicing and conserving policies that are in force.

major medical insurance
A type of medical expense insurance that provides broad coverage for most of the expenses associated with treating a covered illness or injury. See also comprehensive major medical insurance and supplemental major medical insurance.

major services
In dental insurance, dental services, such as inlays, crowns, prosthodontics, and orthodontics, which are often covered at 50 percent of their reasonable and customary charges.

managed care
An organized way to manage costs, use, and quality of the health-care system. The major types of managed care plans are health maintenance organizations (HMOs), point-of-service (POS) plans, and preferred provider organizations (PPOs).

matching contributions
In the United States, contributions made by an employer to an employee's Section 401(k) plan (cash or deferred arrangement) and designed to equal the employee's contributions up to a certain amount or percentage of compensation. See also elective contributions and nonelective contributions.

material fact
A fact that is relevant to an insurance company's underwriting decision regarding issuing or rating a policy.

material misrepresentation
In insurance, a misstatement by an applicant that is relevant to the insurer's acceptance of the risk, because, if the truth had been known, the insurer would not have issued the policy or would have issued the policy on a different basis.

matured endowment
An endowment insurance policy that has reached the end of its term during the lifetime of the insured and is therefore payable.

maximum benefit
The largest benefit amount that a defined benefit pension plan is legally permitted to provide to a plan participant. In the United States, the maximum benefit is determined under Section 415 of the Internal Revenue Code. The maximum benefit is subject to legislative change and is generally indexed to inflation so that it increases as price levels increase. In Canada, a maximum pension benefit is also established under taxation rules. See also contribution limit and section 415 limits.

maximum benefit period
The maximum length of time for which disability income payments will continue.

Medicaid
A joint federal-state health insurance program that is run by the states and covers certain low-income people (especially children and pregnant women) and disabled people.

medical application
An application for insurance in which the proposed insured is required to undergo some type of medical examination. The results of the medical examination are then reported to the insurance company.

medical report
A report on a proposed insured's health that is completed by a physician and is based on a physical examination and questioning of the proposed insured. Such a medical report serves as part of a medical application.

Medicare
The federally sponsored health insurance program of hospital and medical insurance primarily for people aged 65 and older.

Medicare supplement
Medical expense coverage that provides benefits for certain expenses not covered under Medicare. This coverage is available only to individuals who are covered by Medicare and can be purchased by individuals or by employers to cover retired employees.

MIB, Inc. (Medical Information Bureau)
MIB is organized as a non-stock, not-for-profit membership association of life insurance companies of the United States and Canada. MIB conducts a confidential interchange of information of underwriting significance among its member life insurance companies. The interchange enables MIB member companies to protect the interests of prospective insurance consumers, policyholders and life insurance companies from consumers who omit or misrepresent material facts on their applications for life, health or disability insurance. If in the underwriting of an application for insurance, an MIB member company develops information which is significant to health or longevity, a brief, coded resume of such information will be submitted to MIB. If the consumer applies to another MIB member insurance company, that company may request a copy of the report from MIB provided it has obtained from the consumer a written authorization naming MIB as an informational source. Under the general rules of the association, an insurance company may not base its underwriting decision solely on information provided by MIB. Each member company must conduct its own underwriting investigation. Access to MIB information is restricted to each member company's authorized medical, underwriting and claims personnel. Consumers may request disclosure of or correction to their MIB record by contacting the MIB Information Office, P.O. Box 105, Essex Station, Boston, MA 02112, (617) 426-3660.

misrepresentation
(1) A false or misleading statement made to induce a prospect to purchase insurance. Misrepresentation is a prohibited insurance sales practice. (2) A false or misleading statement made by an applicant for insurance. Certain misrepresentations provide a basis for the insurer to avoid the policy.

misstatement of age provision
Life insurance policy wording that specifies the action the insurer will take if, at the insured's death, the insurer discovers that the insured's age was misstated in the application and the misstatement has resulted in an incorrect premium for the amount of insurance purchased. In an individual life insurance policy, this provision specifies that the policy's benefit amount will be adjusted. In a group insurance policy, this provision generally specifies that the policy's premium amount will be adjusted.

mode of premium payment
The frequency with which premiums are paid (for example, annually, quarterly, monthly).

modified net premiums
Net premiums that are other than level, generally being lower for the first year than for subsequent years.

modified-premium whole life insurance
A type of whole life insurance in which the policy owner pays a lower than normal premium for a specified initial period, such as five years. After the initial period, the premium increases to a stated amount that is somewhat higher than usual. This higher premium is then payable for the life of the policy.

money market fund
A low-risk mutual fund that achieves great liquidity by investing primarily in short-term securities.

moral hazard
The danger that a proposed insured might deliberately attempt to conceal or misrepresent information. Moral hazard is a risk factor that affects the underwriting decision.

mortality curve
A line graph that represents the mortality rates as they change from age to age.

mortality experience
The actual number of deaths occurring in a given group of people.

mortality rate
The frequency with which death occurs among a defined group of people. The premium that a person pays for life insurance is based in part on the mortality rate for that person's age group.

mortality table
A chart that displays the rates of death among a given group of people categorized by age. See also aggregate mortality table, annuity mortality table, basic mortality table, select and ultimate mortality table, select mortality table, and ultimate mortality table.

mutual insurance company
An insurance company owned by policy owners rather than stockholders.

NAIC Model Privacy Act
A model bill written by the National Association of Insurance Commissioners and designed to set standards for the collection, use, and disclosure of information gathered for or by insurance institutions, agents, or insurance-support organizations.

National Association of Insurance and Financial Advisors (NAIFA)
is a national nonprofit organization representing the interests of more than 70,000 insurance and financial advisors nationwide, through its federation of over 900 state and local associations. Founded in 1890, NAIFA is the nation's largest financial services membership association.

National Association of Insurance Commissioners (NAIC)
In the United States, an association of state insurance commissioners designed to promote consistent insurance regulation. Although the NAIC has no legal power, the recommendations of the NAIC and the actions taken at its semiannual meetings carry great weight with the individual state insurance commissioners, the state legislatures, and the insurance industry

National Association of Securities Dealers (NASD)
A voluntary association of securities firms empowered by the Maloney Act of 1938 to regulate the affairs of securities firms and to promote fair and ethical practices in the securities business.

national brokerage houses
Large, independent firms that specialize in providing risk management and employee benefits advice to large, commercial clients.

National Organization of Life and Health Guaranty Associations (NOLHGA)
In the United States, an organization supported by the individual state guaranty associations which are its members. It serves as a central source of information for the state associations and helps resolve problems created by the insolvency of insurers that are licensed in more than one state. See also guaranty association.

needs analysis
Part of the fact-finding stage in financial planning process of developing a detailed personal and financial picture of a prospect in order to evaluate his or her insurance and financial needs.

net asset value
The value or purchase price of a share of stock in a mutual fund.

net cost
(1) In individual insurance, any one of several different figures used to indicate the cost of an insurance policy. (2) In group insurance, premiums less dividends.

net premium
The amount of money needed to provide life insurance benefits for a policy. The net premium is calculated by using only an assumed interest rate and a tabular mortality rate. No loading for expenses is added. The net premium equals a policy's gross premium minus the policy's loading. Under statutory accounting, the net premium funds the benefit reserve. See also gross premium, loading, net benefit premium, tabular interest rate, and tabular mortality rate.

net single premium
The present value of the expected benefits of an insurance policy. The net single premium is the amount of money that would have to be collected at the time a policy is issued to assure that there will be enough money to pay the death benefit of the policy, assuming that interest is earned at the expected rate and that claims occur at the expected rate.

no-load fund
A mutual fund in which the investor buys shares directly from the fund and no sales commissions are paid.

nonqualified annuity
A type of annuity in the United States funded with money that has already been taxed by the federal government in the year in which the funds are deposited.

nonsmoker risk class
An underwriting risk class that includes people who are standard risks and who have not smoked cigarettes for a specified period of time, usually 12 months, before applying for insurance. People in the nonsmoker risk class pay lower than standard premiums.

occupation class
A group of occupations that present a similar risk to an insurance company. If all other factors are equal, people in the same occupation class will pay the same premium rates for health insurance.

optionally renewable policy
An individual health insurance policy that is renewable on a policy anniversary only if the insurer chooses to renew it. See also cancellable policy, conditionally renewable policy, guaranteed renewable policy, noncancellable and guaranteed renewable policy, and noncancellable policy.

ordinary life insurance
Life insurance which is available to individuals in relatively unrestricted maximum death benefit amounts, and premiums may be paid monthly or less frequently.

original age conversion
The fact or the act of changing a term life insurance policy to a whole life policy at a premium rate based on the age of the insured at the time the term policy was purchased.

out-of-pocket maximum
The maximum amount of money you will be required to pay in a calendar year for deductibles and coinsurance. It is a stated dollar amount set by the insurance company. Regular premiums and charges in excess of usual and customary rates do not count toward the maximum out-of-pocket amount. .

outstanding premium
a premium that is due on or before the policy statement date but that has not been received by that date.

overinsurance
An amount of insurance that is excessive in relation to the loss insured against.

paid-up policy
An insurance policy that will provide benefits in the future but that requires no further premium payments.

paramedical report
A report based on a physical examination and a medical history completed by a medical technician, a physician's assistant, or a nurse, rather than a physician. A paramedical report describes the health of a proposed insured and can serve as part of an insurance application. .

partial disability
A disability that prevents an insured from engaging in some of the duties of his or her usual occupation or from engaging in the occupation on a full-time basis.

participating policy
A type of life insurance policy or annuity under which policy dividends may be paid to the policy owner. Also called a par policy. See also dividend.

partnership insurance
A type of business insurance designed to provide funds so the remaining partners in a business can buy the business interest of a deceased or disabled partner. See also business-continuation insurance.

payee
The person to whom benefits are payable under a supplementary contract. See also supplementary contract.

payroll deduction plan
(1) See salary-reduction plan. (2) A premium payment method for individual insurance under which an individual's employer deducts the employee's premium amount from his or her paycheck and sends the premium to the insurer.

pension
A life income payable to a person who has retired.

period certain
The specified time during which the insurer unconditionally guarantees that benefit payments will continue under a settlement option or annuity.

permanent and total disability
A condition that prevents an insured from returning to any gainful employment.

plan participant
A person on whose behalf contributions are made or benefits are accrued under a pension or employee-benefit plan.

point-of-service (POS) plan
A type of managed care plan combining features of health maintenance organizations (HMOs) and preferred provider organizations (PPOs), in which individuals decide whether to go to a network provider and pay a flat dollar copayment (say $10 for a doctor's visit), or to an out-of-network provider and pay a deductible and/or a coinsurance charge.

policy
A written document that serves as evidence of an insurance contract and contains the pertinent facts about the policy owner, the insurance coverage, the insured, and the insurer. .

policy anniversary
The anniversary of the date on which a policy was issued. Sometimes simply called the anniversary.

policyholder
(1) The company or organization that owns a group insurance contract (called the group policyholder in Canada). The policyholder of a group insurance contract does not have the same ownership rights under the contract that a policy owner has under an individual contract. (2) In Quebec, the owner of an individual life insurance policy (called the policy owner in the United States and the insured in the rest of Canada). Also sometimes called the owner in Quebec. (3) Often used interchangeably with policy owner.

policy loan
A loan that is made to a life insurance policy owner by an insurer. A policy loan is secured by a policy's cash value and cannot exceed the cash value. When the policy benefits are paid, the amount of any outstanding policy loan made against the policy is deducted from the benefits.

policy owner
The person or party who owns an individual insurance policy. The policy owner is not necessarily the person whose life is insured. The terms policy owner and policyholder are frequently used interchangeably.

policy proceeds
The amount that the beneficiary actually receives from a life insurance policy after adjustments have been made to the basic death benefit for policy loans, dividends, paid-up additions, late premium payments, and supplementary benefit riders. Compare to basic death benefit and death benefit. Also called net policy proceeds.

policy provisions
The statements, following the face page of an insurance policy, that describe the operation of the insurance contract.

policy summary
A document, often in the form of a computer printout, that contains certain legally required data regarding the specific policy being considered by an applicant.

pooling
In group insurance, the practice of underwriting a number of small groups as one large group.

portability
The ability of an individual to transfer from one health insurer to another health insurer without regard to preexisting conditions or other risk factors.

preauthorization
A cost containment feature of many group medical policies whereby the insured must contact the insurer prior to a hospitalization or surgery and receive authorization for the service.

preexisting condition
A health problem that existed before the date your insurance became effective. Many insurance plans will not cover preexisting conditions. Some will cover them only after a waiting period.

preexisting conditions provision
A provision in most medical expense insurance policies stating that until the insured has been covered under the policy for a certain period, the insurer will not pay benefits for any preexisting condition.

preferred provider organization (PPO)
A network of health-care providers with which a health insurer has negotiated contracts for its insured population to receive health services at discounted costs. Health-care decisions generally remain with the patient as he or she selects providers and determines his or her own need for services. Patients have financial incentives to select providers within the PPO network.

preferred risk class
In life insurance, a risk class that consists of individuals whose anticipated mortality is lower than the norm established for the standard risk class. Among other things, people in the preferred risk class are in excellent physical condition, have good family medical histories, and do not smoke. Sometimes called the superstandard risk class.

premium
The monthly amount you or your employer pays in exchange for insurance coverage.

premium deposits
Amounts that are left on deposit with the insurer for the payment of future premiums.

premium receipt
An acknowledgement of an insurer's receipt of an initial premium.

present value
The amount of money that must be invested on a certain day, sometimes called the evaluation date, in order to accumulate to a specified amount at a later date.

primary beneficiary
The party or parties who have first rights to receive policy benefits when the benefits of an insurance policy become payable.

primary care physician
Usually your first contact for health care under a health maintenance organization (HMO) or point-of-service (POS) plan. This is often a family physician, internist, or pediatrician. A primary care physician monitors your health, treats most health problems, and authorizes referrals to specialists, if necessary.

primary provider of benefits
In a coordination of benefits situation, the medical expense plan that pays the full benefits provided by its plan before any benefits are paid by another medical expense plan.

proceeds
The amount of money that the insurance company is obligated to pay for the settlement of a life insurance policy, endowment insurance policy, or annuity.

profit sharing pension plan
In Canada, a money purchase pension plan in which employer contributions are linked to company profits. Employers must make a minimum contribution of 1% of employee earnings, regardless of whether they make a profit, and the plan is subject to the same legal requirements as pension plans.

profit sharing plan
An employee-benefit plan whereby the employer pays a portion of the company's profits to the employees. The employer's contributions are discretionary and may be (1) paid in cash or stock when profits are determined, (2) deferred to individual accounts for each employee, or (3) distributed by a combination of the two methods. Profit-sharing plans can be used as a source of retirement income or as a more short-term savings/investment vehicle.

property insurance
A type of insurance that provides a benefit if insured items are damaged or lost because of fire, theft, accident, or other cause described in the policy.

proposal form
a document that is given to a prospective purchaser of an insurance policy and that contains personalized information about the policy and policy values.

provider
Any person (doctor, nurse) or institution (hospital, clinic, laboratory) that provides medical care.

provider fraud
A type of medical insurance fraud that is initiated by a medical care provider on patients' claims in order to increase the provider's own income. Contrast with individual fraud.

qualified annuity
a type of annuity which is funded with money that is deductible, up to a stated maximum, from the depositor's gross income in the year in which the funds are deposited.

qualified plan
a pension plan or employee-benefit plan which meets a series of federal government requirements and is therefore eligible for certain tax advantages.

rated policy
A policy issued to insure a person classified as having a greater-than-average likelihood of loss. The policy may be issued (a) with special exclusions, (b) with a premium rate that is higher than the rate for a standard policy, or (c) with exclusions and a higher than standard premium rate.

rating classes
The three different approaches that insurers take when they use mortality assumptions to calculate group life insurance premiums. The three rating classes for group premiums are manually rated premiums, experience rated premiums, and blended premiums. See also blended rates, experience rating, and manual rates.

reasonable and customary charge
The amount of money most frequently charged for certain medical procedures in a given geographical area. Medical expense insurance payments are often based on reasonable and customary charges.

reduced paid-up insurance option
A nonforfeiture option under which the net cash value of a life insurance policy is used as a net single premium to purchase a smaller amount of fully paid insurance of the same kind and for the same period as the policy being surrendered.

registered principal
Any person who is licensed with the National Association of Securities Dealers and who holds a management or supervisory position in a securities broker-dealer firm.

registered representative
Any person who is licensed with the National Association of Securities Dealers and who is engaged either in selling securities as the agent or representative of a broker-dealer or in training the sales persons associated with a broker-dealer.

reinstatement
The process by which a life insurance company puts back in force a policy that had lapsed because of nonpayment of renewal premiums. .

reinsurance
A transaction between two insurance companies in which one company purchases insurance from the other to cover part or all of the risks that the first company does not wish to retain in full. See also ceding company and reinsurer.