501(c)(9) trust
In the United States, a
type of trust that many self-insured groups establish to fund their
group insurance plans. All contributions to a 501(c)(9) trust are
deductible for federal income tax purposes, as are all investment
gains made on funds in the trust. The trust must meet certain
federal government requirements. Also called a voluntary employees'
beneficiary association (VEBA). See also self-insured group
insurance.
fixed amount option
A life insurance settlement option
under which the insurer uses the policy proceeds plus interest to
pay the beneficiary a sum of money in a series of annual or more
frequent installments for as long as the proceeds plus interest
last. Also called the fixed payment option.
fixed period option
A life insurance settlement option
under which the insurer pays the beneficiary the policy proceeds
plus interest in a series of annual or more frequent installments
for a specified length of time.
flat amount formula
A method of determining the
retirement benefit for participants in a defined benefit pension
plan. A flat amount formula provides the same periodic (e.g.,
monthly, annual) benefit amount, for example $500 per month, to each
retiree. See also flat percentage of earnings formula and
unit-benefit formula.
flat extra premium method
A method for rating
substandard risks used when the extra risk is considered to be
constant. The underwriter assesses a specific extra premium for each
$l,000 of insurance. Contrast with extra-percentage tables method.
flat percentage of earnings formula
A method of
determining the retirement benefit for participants in a defined
benefit pension plan. This method provides for each participant to
receive a certain percentage of preretirement compensation, for
example 60%. The actual payment amount under this formula depends on
how compensation is defined. See also career average benefit
formula, final average benefit formula, flat amount formula, and
unit-benefit formula.
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.
foreign corporation
From the point of view of a
particular state in the United States, a company that is
incorporated under the laws of another state. Compare to domestic
corporation and alien corporation.
foreign insurer
In Canada, a non-Canadian insurance
company that is incorporated under the laws of a country which is
not a member of the British Commonwealth.
foreseeability
The ability of an insured to have had a
reasonable anticipation that harm or injury would be a likely result
of a certain act or an omitted act.
forfeiture
The unvested amount that remains in a
pension or profit sharing plan when a participant leaves the plan
and withdraws the amounts which are vested. Forfeitures may occur
when an employee is terminated, for example. Forfeitures must either
be used to reduce the plan sponsor's future contributions to the
plan or be reallocated to other participants.
fractional premiums
Premiums that are paid in
installments during a year, such as semiannually, quarterly, or
monthly. Fractional premiums are so called because they are
fractions of the annual premium.
fraternal benefit society
An organization that exists
to provide social and insurance benefits to its members. In such a
society, members often share a common religious, ethnic, or
vocational background, although some fraternals are open to the
general public.
fraternal insurance
Insurance coverage issued by a
fraternal benefit society. See also open contract.
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
policyowner 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.
full-service plan
A health insurance plan which pays in
full the actual cost, if reasonable and customary, of services
received, rather than a specified maximum for each service.
fully contributory
An arrangement in which the insureds
under a group policy pay the entire cost of their insurance.
Contrast with contributory group insurance and noncontributory group
insurance.
funding agency
The party who holds the assets of a
pension plan. Often an insurance company.
funding standard account
For qualified pension plans in
the United States, a bookkeeping account which is maintained in
order to determine whether a defined benefit pension plan is meeting
minimum funding standards set by law. Many of the entries to the
account are derived actuarially. If at any time the plan's funding
is inadequate, then an accumulated funding deficiency is said to
exist. Also known as a minimum funding standard account. See also
minimum funding standards.
funding vehicle
The legal document which governs the
management of pension funds by a funding agency. When the funding
agency is an insurance company, the funding instrument is usually an
insurance contract. Also called the funding instrument.
future service
The prospective service that an employee
will provide to an employer from the date of entry into a pension,
or from the current date, to the employee's normal retirement date.
Pension benefits provided for this service are known as future
service benefits. See also past service.
