An individual health insurance policy that can be terminated at any time by the insurer. See also conditionally renewable policy, guaranteed renewable policy, noncancellable and guaranteed renewable policy, noncancellable policy, and optionally renewable policy.
The largest amount of insurance an insurer or a reinsurer is willing or able to underwrite. The term can refer to an insurer’s capacity on one individual or to the insurer’s capacity for all its business.
captive insurance company
An insurance company, formed and controlled by a separate company, whose purpose is to provide insurance to the controlling company. Companies which form captive insurance companies include all types of companies which extend credit to customers, including banks and retailers. See also agent-owned reinsurance company (AORC).
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.
cash payment option
A life insurance policy dividend option under which policy dividends are paid to the policyowner in cash.
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 policyowner will receive if the policyowner cancels the coverage and surrenders the policy to the insurance company. Also called the net cash value. Compare to cash value.
In a life insurance policy, the amount of money, before adjustment for factors such as policy loans or late premiums, that the policyowner will receive if the policyowner 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 policyowner’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.
(1) In reinsurance, the act of ceding. (2) In reinsurance, a parcel or unit of insurance that a company cedes to a reinsurer.
A request for payment under the terms of an insurance policy.
The person or party making a formal request for payment of benefits due under the terms of an insurance contract.
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.
The process of obtaining necessary claim information in order to decide whether or not to pay a claim.
A claim department’s estimate of the amount of money needed to pay a claim. The estimate is made with the help of information that the claim department gathers in the course of handling the claim. This information may involve, for example, the extent to which the claim is covered by the policy, the effect of previously paid claims on the amount of coverage available to pay a current claim, and the effect of any applicable reinsurance coverage on the claim.
class beneficiary designation
A beneficiary designation that names several people as a group — for example, “children of the insured” — rather than naming each person individually.
A transfer of some ownership rights in a contract from one party to another, generally for a temporary period. Insurance policies are often assigned as collateral for a loan, in which case all transferred rights revert to the assignor when the loan is repaid. See also assignment.
The amount of money paid to an insurance agent for selling an insurance policy. A commission is almost always calculated as a percentage of the premium.
company retention method
A method of comparing the costs of various life insurance policies wherein the present value of premiums, cash values, and dividends is calculated by weighting each item each year by the probability that it will be paid. See also cost comparison methods.
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.
Legally equivalent to physical delivery of a policy. Constructive delivery occurs (a) when an insurer parts with control of the policy with the intention that the insurer will be unconditionally bound by the policy as a completed instrument or (b) when the policy is physically delivered to an agent of the applicant.
The period of time (usually two years) during which an insurer may challenge the validity of a life insurance policy. See also incontestable clause.
The party designated to receive life insurance policy proceeds if the primary beneficiary should die before the person whose life is insured.
The party who will receive any life insurance policy proceeds that are still payable under a settlement option at the time of the primary payee’s death. Unlike the contingent beneficiary, the contingent payee’s rights do not end when the insured dies. Also called the successor payee.
continuous-premium whole life insurance
A type of whole life insurance in which premiums are payable until the death of the insured. Also called straight life insurance.
contract of adhesion
A legally binding agreement that is prepared by one party and that must be accepted or rejected as a whole by the other party, without any bargaining between the parties to the agreement. Insurance contracts are contracts of adhesion.
contract of 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.
The maximum annual addition permitted by law to be made to a participant’s account in a defined contribution pension plan. The annual contribution includes employer contributions, employee contributions, and forfeitures that have been reallocated from other participants’ accounts. The limit is subject to legislative change and is generally indexed to inflation so that it increases as price levels increase. In the United States, the contribution limit is set under Section 415 of the Internal Revenue Code. See also maximum benefit and Section 415 limits.
Any pension or employee benefit plan in which plan participants can or must make contributions to the plan out of their own funds. Contrast with noncontributory plan.
(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 policyowner 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.
(1) In the United States, the required difference between a universal life insurance policy’s death benefit and the policy’s cash value. This difference is a specified percentage that depends on the insured’s age. If a policy’s cash value exceeds the required percentage of the death benefit (that is, intrudes on the corridor), the policy will be considered an investment contract rather than an insurance contract. Also called the TEFRA corridor. (2) In reinsurance, an amount of insurance which is in excess of the ceding company’s retention limit but which is less than the reinsurer’s minimum cession. The ceding company must usually retain this amount of insurance.
cost comparison methods
The different formulas that insurance companies use to show prospective policyowners the cost of different insurance policies. See also company retention method, interest-adjusted net cost method, and rate of return method.
credit life insurance
A type of decreasing term insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid.
current assumption whole life insurance
A type of whole life insurance in which premium rates and cash values vary according to the insurer’s assumptions regarding mortality, investment, and expense factors. Each policyowner can decide whether he or she wants favorable changes in assumptions to result in a lower premium or a higher cash value for the policy. If changes in assumptions result in a higher premium than that paid when the policy was purchased, the policyowner may choose to lower the policy’s death benefit and maintain the previous premium or pay the higher premium and maintain the original death benefit. As with indeterminate premium life insurance, current assumption whole life insurance guarantees that the premium will not increase above the rate guaranteed when the policy was purchased. Also called interest-sensitive whole life insurance.