absolute assignment
An irrevocable
transfer of complete ownership of a life insurance policy from one
party to another. See also assignment.
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.
Ask your agent for information about these and other policy
riders.
accidental death and dismemberment (AD&D) 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 or loses any two limbs or the sight of both eyes as the
result of an accident. Some AD&D riders pay one half of the
benefit amount if the insured loses one limb or the sight in one
eye.
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.
accidental means provision
A life insurance policy
accidental death benefit provision which states that an accidental
death benefit will be payable if the insured's death was the result,
directly and independently of all other causes, of bodily injury
caused solely by external, violent, and accidental means.
accidental result provision
A life insurance policy
accidental death benefit provision which states that an accidental
death benefit will be payable if the insured's death was the result,
directly and independently of all other causes, of accidental bodily
injury.
accident perils
A classification used by health
insurance underwriters to evaluate the type and degree of peril
represented by a particular occupation. Accident perils include
exposure to fire, the use of dangerous machinery, the handling of
heavy objects, and the risk of falling. See also illness perils.
accrued benefit
In a defined benefit pension plan, the
amount of pension benefit which has accumulated in a pension plan on
behalf of an individual plan participant at any particular time.
accumulated cost of insurance
A factor used in the
calculation of life insurance reserves. For a given group of
insureds, the accumulated cost of insurance equals the net single
premium that would have to be paid at the end of the term of
coverage by the surviving insureds to provide death benefits on the
insureds who died during the term.
accumulated funding deficiency
In the United States,
the amount by which a qualified pension plan fails to meet the
minimum funding standards set by law. Plans with an accumulated
funding deficiency are subject to a penalty tax and enforcement
provisions. Sometimes simply called a funding deficiency.
accumulated value
An amount of money invested plus the
interest earned on that money.
accumulation at interest option
A life insurance policy
dividend option under which policy dividends are left on deposit
with the insurer to accumulate at interest. Also called the
accumulation option.
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.
actively-at-work provision
A provision found in many
group insurance contracts which specifies that, if an employee is
absent from work because of sickness, injury, or certain other
specified reasons, on the day the employee's coverage under the
contract is due to begin, then coverage will not begin until the day
the employee returns to work.
actuarial assumptions
(1) The mortality, morbidity,
interest, expense, and other forecasts used to calculate premium
rates and reserves. (2) In pension planning, the assumptions that
actuaries make in the areas of investment earnings, mortality, plan
expenses, salary levels, and employee turnover. These assumptions
affect the amount of the annual contribution that is necessary to
adequately fund a defined benefit pension plan.
actuarial cost method
For a defined benefit pension
plan, a method of calculating the annual amount a plan sponsor must
contribute to fund a given set of plan benefits for a particular
group of participants.
actuarial department
The department in a life and
health insurance company responsible for seeing that the company's
operations are conducted on a mathematically sound basis. In
conjunction with other departments, it designs and revises a
company's life and health insurance products. The actuarial
department calculates premium and dividend rates, determines what a
company's reserve liabilities should be, and establishes
nonforfeiture, surrender, and loan values. It also does the research
needed to predict mortality and morbidity rates, to establish
guidelines for selecting risks, and to determine the profitability
of the company's products.
actuarial valuation
A determination by an actuary of
the value of a pension plan's assets and its liabilities. The
valuation, which is based on statistical probability, is used to
determine if the assets are adequate to fund the plan's liabilities.
If the value of the assets is not adequate, the plan sponsor must
increase its contributions to make up the deficiency; if the assets
are more than adequate, the plan sponsor can reduce contributions.
Also called plan valuation.
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.
additional term insurance option
A life
insurance policy dividend option under which policy dividends are
used as a net single premium to purchase one-year term insurance.
Also called the additional insurance option or the fifth dividend
option.
adjustable life insurance policy
A life insurance
contract designed specifically to allow the policyowner to alter the
policy's plan by changing the amount of the coverage or the amount
of the premium. The insurer calculates the specific plan of
insurance that can be provided based on the requested death benefit
and premium. Therefore, an adjustable life insurance policy can use
insurance plans that range from a term insurance policy of short
duration to a limited-payment whole life insurance policy.
administrative services only (ASO)
An arrangement
whereby an organization (usually an employer) hires an outside firm
to perform specific administrative services, usually including claim
administration, for a group health insurance program. The
organization retains financial responsibility for paying claims. See
also self-insured group insurance and third-party administrator
(TPA).
admitted reinsurer
In the United States, a reinsurer
which is licensed to accept reinsurance in a given jurisdiction.
Also called an authorized reinsurer. Contrast to nonadmitted
reinsurer.
advanced underwriting department
An insurance company
home office department responsible for providing technical and sales
assistance to agents involved in estate planning and business
insurance cases. Also known as the estate planning department.
advance funding
A procedure in which a pension plan
sponsor deposits amounts of money in a fund during the working years
of plan participants to guarantee payment of pension benefits to the
plan participants when they retire.
Age Discrimination in Employment Act of 1967
(ADEA)
United States legislation that protects employment
rights of individuals age 40 and over. ADEA prohibits age-based
firings and generally prevents employers from forcing employees to
retire at age 65. In relation to pension plans, ADEA prohibits
employers from discontinuing contributions or benefit accruals to an
individual's pension plan after that person reaches age 65.
agency
The legal relationship between an agent and a
principal. See agency relationship.
agency agreement
An agreement between a principal and
an agent that describes the scope of the agent's actual authority.
See agent and principal.
agency bank
A mutual savings bank that does not sell
its own savings bank life insurance policies to the public but,
instead, sells such policies as an agent for an issuing bank. An
agency bank only accepts applications, collects premiums, and
provides service for its policyowners. See also issuing bank and
savings bank life insurance (SBLI).
agency by appointment
An agency relationship that is
created when a principal appoints an agent to act on the principal's
behalf. See agency relationship. Contrast with agency by
ratification.
agency by ratification
An agency relationship that is
created when the principal ratifies a purported agent's unauthorized
act. See agency relationship. Contrast with agency by appointment.
agency relationship
In law, the relationship between
two parties by which one party, the agent, is authorized to perform
certain acts on behalf of the other party, the principal.
agency system
A distribution system in which insurance
companies use their own commissioned agents to sell and deliver
insurance policies. The agency system is the most common system for
distributing individual life insurance products and includes the
branch office distribution system and the general agency
distribution system. Also called the ordinary agency system. See
also branch office distribution system, brokerage distribution
system, and general agency distribution system.
agent
A party who is authorized by another party, the
principal, to act on the principal's behalf in contractual dealings
with third parties. Called a mandatary in Quebec. See also insurance
agent.
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 of record
The agent or broker who is recognized
by the insurer as the person to whom the commission is to be paid.
agent-owned reinsurance company (AORC)
A captive
reinsurance company formed by an insurance company and owned by a
group of the company's agents. The company insures all business
written by those agents with the captive so that the agents can
share in the profits of their own labor.
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.
age of majority
The age at which a person has the legal
capacity to enter into and be bound by a contract.
A: Part
Two
