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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
In dental insurance, dental services, such as inlays, crowns, prosthodontics, and
orthodontics, which are often covered at 50 percent of their reasonable and
The name given to a broad spectrum of techniques by which insurance
companies attempt to reduce health care costs by participating in decisions
concerning the treatment given to those they insure. See also case management
and utilization review.
managing general agent (MGA)
An independent contractor who is authorized to appoint PPGAs on a company's
behalf and who may represent more than one company.
A benefit required by state law to be included in a health insurance policy.
mandatory securities valuation reserve (MSVR)
In the United States, a liability account that is designed to absorb, within certain
specified limits, realized and unrealized capital gains and losses resulting from
an insurer's investments.
Premium rates that are established for broad classes of groups. Manual rates are
often used to establish premium rates for small groups with no credible loss
experience, and to establish initial premium rates for large groups. See also
blended rates and experience rating.
The legal contract between an insurance company and a group insurance
policyholder. The master contract insures a number of people under a single
contract. Also called the master policy. See also certificate of insurance.
A standardized form of pension or other employee-benefit plan developed by a
financial institution to simplify plan drafting for plan sponsors. Although similar to
a prototype plan, a master plan usually refers to a plan document developed by a
financial institution (like an insurer) that can be adopted only by plan sponsors
who use that financial institution to fund the plan.
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.
A fact that is relevant to an insurance company's underwriting decision regarding
issuing or rating a policy.
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.
An endowment insurance policy that has reached the end of its term during the
lifetime of the insured and is therefore payable.
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.
maximum benefits for related confinements provision
A provision included in basic hospital and surgical policies that limits the
maximum benefits for all hospital confinements and for all surgery performed
during one period of sickness or for any single injury.
A government-funded program in the United States that provides medical
expense coverage for eligible people under age 65 who are indigent and meet
certain other criteria. The program is administered by the states and is supported
by state and federal funds.
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 expense insurance
Any of several types of health insurance designed to pay for part or all of an
insured's health care expenses, such as hospital room and board, surgeon's
fees, visits to doctors' offices, prescribed drugs, treatments, and nursing care.
See also hospital confinement insurance, hospital-surgical expense insurance,
major medical insurance, and specified expense coverage.
Medical Information Bureau (MIB)
An organization that serves as a clearinghouse for medical information for the life
insurance industry. When a person applies for life insurance, the insurance
company sends the applicant's medical test results and any indication of health
impairments to the MIB. This information is then available to other insurers when
they are investigating an applicant's insurability. Access to MIB-coded
information is restricted to authorized medical, underwriting, and claim personnel
in member companies. No member company can request information from the
MIB unless the individual being investigated gives written consent. An insurance
company cannot base its underwriting decision solely on information provided by
medical necessity provision
A condition included in most major medical expense plans, stating that medical
services that are educational or experimental in nature are not eligible for
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.
A United States government program that provides medical expense coverage to
persons age 65 and over and to people with certain disabilities, as specified by
Medical expense coverage offered by employers to retired employees that
reduces medical expense benefits to the extent that those benefits are provided
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 by purchased by individuals or by employers to
cover retired employees.
minimum age requirement
In pension planning, a requirement that an employee attain a certain age before
being permitted to participate in the employer's pension plan. In the United
States, a private employer's qualified pension plan cannot have a minimum age
requirement greater than age 21. See also minimum service requirement.
minimum deposit arrangement
An arrangement whereby a policyowner can apply the first-year cash value of a
policy to the initial premium amount.
minimum deposit business
The use of policy loans to pay premiums. In minimum deposit business, a
policyowner instructs the insurance company to pay the premium out of the
policy's cash value and to bill the policyowner for a premium only if the cash
value is insufficient to pay the premium. Also called leveraged business.
minimum funding standards
In the United States, standards established under Section 412 of the Internal
Revenue Code relating to the advance funding of qualified pension plans. The
standards are designed to ensure that contributions to a qualified plan are
adequate to meet the plan's current and future obligations. Failure to satisfy
minimum funding standards can lead to penalty taxes and enforcement actions.
See also funding standard account.
minimum premium plan (MPP)
A group health insurance plan that is partially self-insured by the group
policyholder but fully administered by an insurance company. The premium is
small because the group policyholder pays most of the claims itself. See also
administrative services only (ASO) contract and self-insured group.
minimum service requirement
In pension planning, a requirement that an employee complete a certain period of
employment (often known as a probationary or waiting period) before being
permitted to participate in the employer's pension plan. In the United States, an
employee who meets minimum age requirements generally cannot be subject to
a waiting period of more than one year, although a plan with full and immediate
vesting of benefits can require a two-year waiting period. In Canada, a two-year
waiting period is permissible. See also minimum age requirement.
(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,
Model Life Insurance Solicitation Regulation
In the United States, a regulation adopted by the NAIC in 1976 that requires
insurers to give life insurance consumers (1) information that will improve their
ability to select the most appropriate plan of life insurance to meet their needs,
(2) an understanding of the basic features of the policy that has been purchased
or that is under consideration, and (3) the ability to evaluate the relative costs of
similar plans of life insurance.
Model Rules Governing the Advertisement of Life Insurance
In the United States, an NAIC model law which provides a set of comp
rehensive guidelines covering nearly all aspects of advertisements for life
insurance policies and annuity contracts.
Model Unfair Trade Practices Act
In the United States, an NAIC model law that prohibits unfair trade practices,
such as defamation, rebating, unfair discrimination, and unfair claim settlement
practices; the law contains a general prohibition against any form of insurance
advertising that is "untrue, deceptive, or misleading."
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 policyowner 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-
money-purchase pension plan
A type of defined contribution plan that specifies a rate of contribution to each
participant's account (for example, 8% of annual compensation) and results in a
benefit that is equal to the amount in the participant's account (including
investment gains and losses) at retirement. Upon retirement, the money that the
employer has contributed, plus investment earnings, is often used to purchase an
annuity which will provide a regular pension benefit.
monthly debit ordinary (MDO) insurance
Ordinary life insurance that is marketed under the home service system and paid
for by monthly premium payments, usually made to an agent. See also home
service distribution system.
monthly outstanding balance method
In group creditor insurance, a premium-paying arrangement for contributory
plans whereby, every month, the lender adds to the outstanding balance of the
loan an amount sufficient to insure that balance for one month. Contrast with
The danger that a proposed insured might deliberately attempt to conceal or
misrepresent information. Moral hazard is a risk factor that affects the
Sickness, disability, or failure of health.
The likelihood that a person of a given age will suffer an illness or disability. The
premium that a person pays for health insurance is based in part on the morbidity
rate for that person's age group.
A chart that shows the rates of sickness and injury occurring among given groups
of people categorized by age.
The cost of the insurance protection element of a universal life policy. This cost is
based on the net amount at risk under the policy, the insured's risk classification
at the time of policy purchase, and the insured's current age.
A line graph that represents the mortality rates as they change from age to age.
The actual number of deaths occurring in a given group of people.
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.
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.
mortgage redemption insurance
A form of decreasing term insurance that covers the life of a person who takes
out a mortgage. If the person dies during the term of insurance, the policy
proceeds will approximate the remaining amount of the mortgage loan.
A pension or other employee-benefit plan involving more than one employer and
established by collective bargaining (negotiation between a union and
employers). Coverage under the plan is portable within the group, which means
that an employee who leaves one employer who is a member of the group and
goes to work for another member of the group may continue coverage under the
multiple-employer trust (MET)
(1) An arrangement whereby several employers (often in the same industry)
cooperate to procure group insurance for their employees. (2) An arrangement
made by an insurance company to cover several employers under one master
policy, usually with specific benefit packages and limitations.
multiple-line agency (MLA) system
A personal selling distribution system that uses full-time career agents to
distribute both life and health and property/casualty insurance products for
groups of financially interrelated or commonly managed insurance companies.
Also known as the multiple-line exclusive agency system or all-lines exclusive
mutual benefit method
An early method of funding life insurance, formerly used by fraternal orders or
guilds. Under the mutual benefit method, the promised death benefit was
provided by charging participating members an equal amount after the death of
an insured member. Also called the post-death assessment method. See also
mutual insurance company
An insurance company owned by policyowners rather than stockholders.
The process of converting a stock insurance company to a mutual insurance
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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
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. Similar to the Canadian
Council of Insurance Regulators in Canada.
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
Part of the fact-finding stage in the personal selling process; the process of
developing a detailed personal and financial picture of a prospect in order to
evaluate his or her insurance needs.
An agreement resulting from collective bargaining (negotiation between a union
and one or more employers) which provides group insurance for the members of
the union. Also called a Taft-Hartley Trust.
net amount at risk
The death benefit of a life insurance policy minus the policy's reserve at the end
of the policy year.
net asset value
The value or purchase price of a share of stock in a mutual fund.
net benefit premium
Under generally accepted accounting principles (GAAP), the portion of the
premium that funds the benefit reserve. See net premium.
(1) In individual insurance, any one of se veral different figures used to indicate the
cost of an insurance policy. (2) In group insurance, premiums less dividends.
net level premium reserve
The amount of liability that an insurance company establishes for a policy. The
net level premium reserve is calculated using net level annual premiums.
net payment cost index
See interest-adjusted payment.
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.
In group insurance, the maximum amount for which an insurance company will
insure an individual without first securing evidence of insurability. Also known as
the guaranteed issue limit.
A mutual fund in which the investor buys shares directly from the fund and no
sales commissions are paid.
Those assets that cannot be included on the balance sheet of a life insurance
company's Annual Statement.
In the United States, a reinsurer who is not licensed to accept reinsurance in a
given jurisdiction. Contrast to admitted reinsurer.
noncancellable and guaranteed renewable policy
An individual health insurance policy that the insurer cannot terminate and for
which the premiums cannot be raised. See also cancellable policy, conditionally
renewable policy, guaranteed renewable policy, noncancellable policy, and
optionally renewable policy.
An individual health insurance policy for which the premium cannot be raised by
the insurer and which must be renewed by the insurer until the insured reaches a
specified age, provided premiums are paid when due. See also cancellable
policy, conditionally renewable policy, guaranteed renewable policy,
noncancellable and guaranteed renewable policy, and optionally renewable
noncontributory group insurance
A group insurance plan in which the insureds pay no portion of the premium for
their insurance. The group policyholder pays the entire premium. If a group plan
is noncontributory, the enrollment of group members is automatic; all eligible
group members are covered. Contrast to contributory group insurance.
A pension or employee-benefit plan in which contributions are made entirely by
the plan sponsor. Contrast with contributory plan.
nonduplication of benefits
A method of coordinating medical expense benefit payments between two
insurance carriers that allows the secondary carrier to pay the difference, if any,
between the amount paid by the primary plan and the amount that would have
been payable by the secondary plan had that plan been the primary plan.
In the United States, contributions other than matching contributions made by an
employer to an employee's Section 401(k) plan (cash or deferred arrangement).
The contributions are made using employer funds and not through a reduction of
the employee's salary. See also elective contributions and matching
Under the general agency system, a territory in which more than one general
agent may represent the same insurer. Compare to exclusive territory and
Special values, similar to annual premiums, that some insurers use to calculate
their policies' cash values. Each insurer calculates its own nonforfeiture factor. In
the United States, the nonforfeiture factor can never be greater than the adjusted
premiums required by the Standard Nonforfeiture Law.
The various ways in which a policyowner may apply the cash value of a life
insurance policy if the policy lapses. See also automatic nonforfeiture option,
automatic premium loan (APL), cash surrender value option, extended term
insurance option, and reduced paid-up insurance option.
The benefits, as printed in a life insurance policy, that the insurer guarantees to
the policyowner if the policyowner stops paying premiums. These amounts may
be used in a variety of nonforfeiture options.
noninsured pension fund
A pension fund that is not funded by insurance contracts.
An application for insurance in which the proposed insured is not required to
undergo a medical examination. However, a nonmedical application does contain
questions that the proposed insured must answer about his or her health. See
also nonmedical supplement.
A report that describes the proposed insured's health history. A nonmedical
supplement is completed by the agent based on information provided by the
proposed insured and can serve as part of a nonmedical application. Also called
a nonmedical declaration. See also nonmedical application.
A type of life insurance policy or annuity in which the policyowner does not
receive policy dividends. Also called a nonpar policy.
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.
nonqualified deferred-compensation plan
In the United States, a retirement income plan that does not meet the
requirements of the Internal Revenue Service (IRS) for qualified plans. Although
such plans do not receive the tax advantages of qualified plans, they need not
satisfy the restrictive plan design requirements that qualified plans must satisfy.
Nonqualified plans are often used as a benefit for executives or highly
A license authorizing an agent who resides in another state to sell insurance in
the licensing state.
nonretroactive disability benefits
A type of disability benefit that is payable only for the period of disability that
follows an elimination period.
nonscheduled dental plan
A dental plan which pays benefits for procedures based on the dentist's actual
charges, as long as the charges are usual, customary, and reasonable. See also
combination dental plan and scheduled dental plan.
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
The actuarially determined amount needed to fund for one plan year the
retirement benefits of a pension plan participant or of a pension plan as a whole.
A plan's normal cost is dependent on the actuarial funding method and
assumptions used by the plan.
normal retirement age
The earliest age at which a participant in a pension plan can retire and receive
the plan's specified benefit in full. Usually age 65. See also early retirement age
and late retirement age.
numerical rating system
A method of classifying risks in which each medical and nonmedical factor is
assigned a numerical value based on its expected impact on mortality. See also
credits and debits.
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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.
A tax law provision that allows an insurer to use the amount paid for one type of
tax to reduce another aspect of the company's tax liability.
A way of integrating benefits from a private defined benefit pension plan with
benefits from a government plan. The benefit payable from the private plan is
reduced by a specified percentage of the benefit received from the government
Old Age, Survivors, Disability and Health Insurance Act (OASDHI)
The legislation that created Social Security in the United States. See Social
A type of insurance contract used by fraternal benefit societies. Under this type of
contract, the society's charter, constitution, and bylaws become a part of the
insurance contract, and any amendments to them automatically become
amendments to the insurance contract. No such amendment, however, can
destroy or diminish benefits that the society is contractually obligated to pay. See
also closed contract and fraternal benefit society.
In a home service sales territory, a block of policyowners that does not have an
assigned servicing agent.
A choice that a policyowner can make when deciding how to apply settlements,
dividends, or nonforfeiture values. See also dividend options, nonforfeiture
options, and settlement options.
option A plan
A plan used in universal life insurance in which the potential policy proceeds
remain level. In an option A plan, the policy proceeds are equal to the policy's
death benefit. Consequently, the net amount at risk is equal to the difference
between the policy's death benefit and the policy's cash value. As the cash value
increases, the net amount at risk decreases. Contrast to option B plan.
option B plan
A plan used in universal life insurance in which the potential policy proceeds
increase. In an option B plan, the policy proceeds are equal to the death benefit
plus the policy's cash value. Consequently, the net amount at risk is always
equal to the death benefit of the policy. Contrast to option A plan.
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.
See individual insurance.
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
Medicare patients whose illnesses are unique and whose conditions may not be
classifiable under one of the diagnostic related groups.
An amount of insurance that is excessive in relation to the loss insured against.
A provision in an individual health insurance policy specifying that, under certain
circumstances, policy benefits will be reduced if the insured has more insurance
than needed to cover medical expenses or if disability income would exceed the
insured's predisability earnings. See also coordination of benefits (COB) clause.
Under the general agency system, a territory in which some portion of the
territory is open to an agent other than the general agent, while the rest of the
territory is the exclusive domain of the general agent. See also exclusive territory
and nonexclusive territory.
The situation in which an insurance or reinsurance company has accepted an
amount of insurance which exceeds the company's normal capacity on a specific
risk. Also referred to as overlined.
A commission earned by a field office manager that is based on the business
produced by the agents in that office. An overriding commission may be earned
each time an agent sells business or it may be based on the overall production of
the field office. Also called the override.