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Tools & Resources General Insurance Term Glossary

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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

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.

mandated benefit

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.

manual rates

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.

master contract

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.

master plan

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.

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.

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.

Medicaid

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.

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 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 the MIB.

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 coverage.

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

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 Congress.

Medicare carve-out

Medical expense coverage offered by employers to retired employees that reduces medical expense benefits to the extent that those benefits are provided by Medicare.

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 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.

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).

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- term securities.

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 single-premium method.

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.

morbidity

Sickness, disability, or failure of health.

morbidity rate

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.

morbidity table

A chart that shows the rates of sickness and injury occurring among given groups of people categorized by age.

mortality charge

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.

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.

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.

multi-employer plan

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 plan.

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 agency system.

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 assessment method.

mutual insurance company

An insurance company owned by policyowners rather than stockholders.

mutualization

The process of converting a stock insurance company to a mutual insurance company.

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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 organizations.

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 association.

needs analysis

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.

negotiated trusteeship

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.

net cost

(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.

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-evidence limit

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.

no-load fund

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

nonadmitted assets

Those assets that cannot be included on the balance sheet of a life insurance company's Annual Statement.

nonadmitted reinsurer

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.

noncancellable 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 policy.

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.

noncontributory plan

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.

nonelective contributions

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 contributions.

nonexclusive territory

Under the general agency system, a territory in which more than one general agent may represent the same insurer. Compare to exclusive territory and overlapping territory.

nonforfeiture factors

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.

nonforfeiture options

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.

nonforfeiture values

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.

nonmedical application

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.

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.

nonparticipating policy

A type of life insurance policy or annuity in which the policyowner does not receive policy dividends. Also called a nonpar policy.

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.

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 compensated employees.

nonresident license

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 standard premiums.

normal cost

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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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.

offset

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.

offset approach

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 plan.

Old Age, Survivors, Disability and Health Insurance Act (OASDHI)

The legislation that created Social Security in the United States. See Social Security.

open contract

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.

open debit

In a home service sales territory, a block of policyowners that does not have an assigned servicing agent.

option

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.

ordinary insurance

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 purchased.

outliers

Medicare patients whose illnesses are unique and whose conditions may not be classifiable under one of the diagnostic related groups.

overinsurance

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

overinsurance provision

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.

overlapping territory

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.

over-retained

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.

overriding commission

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.

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