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Tools & Resources General Insurance Term Glossary

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paid-up additions

Additional life insurance purchased with policy dividends. No additional premiums are needed for paid-up additions. Also called dividend additions.

paid-up policy

An insurance policy that will provide benefits in the future but that requires no further premium payments.

paramedical report

A report based on a physical examination and a medical history completed by a medical technician, a physician's assistant, or a nurse, rather than a physician. A paramedical report describes the health of a proposed insured and can serve as part of an insurance application.

partial disability

A disability that prevents an insured from engaging in some of the duties of his or her usual occupation or from engaging in the occupation on a full-time basis.

partial disability benefit

A flat amount specified in a disability income insurance policy that is payable when the insured suffers a partial disability. Usually the partial disability benefit is half the full disability benefit. See also residual disability benefit.

partial plan termination

The termination of a pension or employee-benefit plan for one group of participants but not for another. Sponsors sometimes do this to reclaim some of the assets of an overfunded plan.

participating policy

A type of life insurance policy or annuity under which policy dividends may be paid to the policyowner. Also called a par policy. See also dividend.

partnership insurance

A type of business insurance designed to provide funds so the remaining partners in a business can buy the business interest of a deceased or disabled partner. See also business-continuation insurance.

past service

The period of employment service rendered by an employee before a pension plan was begun or amended or before the employee enrolled in the pension plan. A plan sponsor must decide whether pension benefits will be credited to an employee for the employee's past service or only for current and future service. See also future service.

payee

The person to whom benefits are payable under a supplementary contract. See also supplementary contract.

payroll deduction plan

(1) See salary-reduction plan. (2) A premium payment method for individual insurance under which an individual's employer deducts the employee's premium amount from his or her paycheck and sends the premium to the insurer.

peer review group

A group of local physicians who help solve insurance claim disputes and promote fair and ethical practices in the health-care industry.

pension

A life income payable to a person who has retired.

Pension Benefit Guaranty Corporation (PBGC)

In the United States, the organization which insures benefits in defined benefit pension plans. Its purpose is to make sure that all participants in qualified defined benefit pension plans receive the vested benefits to which they are entitled, even if their pension fund goes bankrupt.

per-cause deductible

A deductible which must be satisfied for each separate accident or illness before major medical benefits will be paid. Also known as a per-disability deductible. Contrast with all-causes deductible.

per-cause maximum

For any individual, the maximum amount that a medical expense policy will pay for medical expenses resulting from any particular illness or injury.

percentage contribution

The amount of the premium that a group member pays in a contributory group insurance plan. Also known as employee contribution or member contribution. See also contributory group insurance.

percentage participation

See coinsurance.

period certain

The specified time during which the insurer unconditionally guarantees that benefit payments will continue under a settlement option or annuity.

permanent and total disability

A condition that prevents an insured from returning to any gainful employment.

persistency

The retention of business that occurs when a policy remains in force as a result of the continued payment of the policy's renewal premiums.

personal interview report

A report that contains the same types of information as an inspection report, except that the personal interview report relies on the proposed insured as the only source of information. See also inspection report.

personal producing general agency (PPGA) system

A personal selling distribution system that relies on the use of PPGAs.

personal producing general agent (PPGA)

A type of general agent who more closely resembles a broker than an agency manager. Most PPGAs are under contract to several insurance companies and spend the majority of their time selling insurance rather than building and managing an agency office.

personal selling distribution system

An insurance distribution system that uses commissioned or salaried sales personnel to sell products through oral presentations made to prospective purchasers.

physical examination provision

A health insurance policy provision that grants the insurer the right to have an insured who has submitted a claim examined by a doctor of the insurer's choice at the insurer's expense.

plan document

A written document that is adopted by an employer and that specifies the terms of a pension plan. A plan document identifies the benefits the participants are to receive and the requirements they must meet to become entitled to those benefits.

plan participant

A person on whose behalf contributions are made or benefits are accrued under a pension or employee-benefit plan.

plan sponsor

An entity which has adopted and maintains a pension or employee-benefit plan. The plan sponsor is often an employer, but may be a union, a trade or professional association, or a committee composed of representatives of a number of employers or associations.

policy

A written document that serves as evidence of an insurance contract and contains the pertinent facts about the policyowner, the insurance coverage, the insured, and the insurer.

policy acquisition costs

Costs that are directly attributable to the production of new business. Also called acquisition expenses.

policy anniversary

The anniversary of the date on which a policy was issued. Sometimes simply called the anniversary.

policy charge

An amount that an insurer adds to the gross premium to help cover the insurer's expenses. This amount is the same regardless of the size of the policy. Also called a policy fee.

policy filing

The process of obtaining legal permission to sell an insurance product in a specific jurisdiction.

policyholder

(1) The company or organization that owns a group insurance contract (called the group policyholder in Canada). The policyholder of a group insurance contract does not have the same ownership rights under the contract that a policyowner has under an individual contract. (2) In Quebec, the owner of an individual life insurance policy (called the policyowner in the United States and the insured in the rest of Canada). Also sometimes called the owner in Quebec. (3) Often used interchangeably with policyowner.

policy loan

A loan that is made to a life insurance policyowner by an insurer. A policy loan is secured by a policy's cash value and cannot exceed the cash value. When the policy benefits are paid, the amount of any outstanding policy loan made against the policy is deducted from the benefits.

policyowner

The person or party who owns an individual insurance policy. The policyowner is not necessarily the person whose life is insured. The terms policyowner and policyholder are frequently used interchangeably.

policy proceeds

The amount that the beneficiary actually receives from a life insurance policy after adjustments have been made to the basic death benefit for policy loans, dividends, paid-up additions, late premium payments, and supplementary benefit riders. Compare to basic death benefit and death benefit. Also called net policy proceeds.

policy provisions

The statements, following the face page of an insurance policy, that describe the operation of the insurance contract.

policy summary

A document, often in the form of a computer printout, that contains certain legally required data regarding the specific policy being considered by an applicant.

policy year

The 12-month period between a policy's anniversaries.

portability

A pension plan participant's right to transfer (usually tax-free) pension credits that have accrued under a pension plan sponsored by one employer to a plan sponsored by another employer.

portfolio

(1) A group of investments managed or owned by an individual or organization. (2) All of the products offered by an insurance company.

portfolio method

A method of accounting among insurers in which each customer or policyowner receives a rate of interest equal to the average rate of interest earned on the entire portfolio of assets in the insurer's general account. Compare to the investment year method (IYM).

post-notice

As required by the Fair Credit Reporting Act, a form that the insurer must send to an applicant in cases in which the insurer has made an adverse decision based on information contained in a report from a consumer reporting agency.

power of agency

An agent's right to act for an insurer. The power of agency is established through agency contracts between an insurer and its agents.

preadmission review

A component of a utilization review program that requires an insured person, or that person's physician, to obtain prior authorization from an insurer before any non-emergency hospitalization.

preauthorized payment system

A method of payment in which a policyowner signs a two-part authorization for the payment of insurance premiums. The first part authorizes the insurance company to withdraw funds from the policyowner's bank account in the amount of the premium due. The second part authorizes the bank to honor the withdrawals, which do not contain the policyowner's signature. When the preauthorized payment system is implemented through the use of checks, it is called the preauthorized check (PAC) system.

predetermination of benefits provision

A provision often included in dental policies which specifies that when dental treatments are expected to exceed a stated level, such as $100, $150, or $200, the dentist should submit to the insurer the proposed treatment plan for the patient so that the insurer can determine the amount payable by the dental plan. Also known as a preauthorization of benefits provision, precertification of benefits provision, or pretreatment review provision.

pre-existing condition

(1) In individual health insurance, an injury that occurred or a sickness that first manifested itself before the policy was issued and that was not disclosed on the application. (2) In group health insurance, a condition for which an individual received medical care during a specified period, usually three months, immediately prior to the effective date of coverage.

pre-existing conditions provision

A provision in most medical expense insurance policies stating that until the insured has been covered under the policy for a certain period, the insurer will not pay benefits for any pre-existing condition.

preference beneficiary clause

Life insurance policy wording which states that if no specific beneficiary is named, the insurer will pay the policy proceeds in a stated order according to a list of individuals included in the policy.

preferred provider organization (PPO)

A group of hospitals and physicians that makes a contract with employers, insurers, and other organizations to provide comprehensive health care services at discounted fees for individuals who are members of the PPO.

preferred risk class

In life insurance, a risk class that consists of individuals whose anticipated mortality is lower than the norm established for the standard risk class. Among other things, people in the preferred risk class are in excellent physical condition, have good family medical histories, and do not smoke. Sometimes called the superstandard risk class.

preliminary inquiry form

A type of application form used when there is a high probability that a policy either will not be issued or will be issued with such a high substandard rating that the policy premium will be unacceptable to the applicant. Using a preliminary inquiry form usually brings a quick response from the underwriting department. Also called a trial application.

premium

The payment, or one of a series of payments, required by the insurer to put an insurance policy in force and keep it in force.

premium deposits

Amounts that are left on deposit with the insurer for the payment of future premiums.

premium receipt

An acknowledgement of an insurer's receipt of an initial premium.

premium receipt book

A book given to the policyowner when a home service agent makes a policy sale. The premium receipt book contains prenumbered receipts that are signed by the agent when the agent collects a premium.

premium reduction option

A life insurance policy dividend option under which policy dividends are applied toward the payment of renewal premiums.

pre-notice

As required by the Fair Credit Reporting Act, advance notice to an insurance applicant from an insurer that an investigative consumer report may be made on the applicant.

present value

The amount of money that must be invested on a certain day, sometimes called the evaluation date, in order to accumulate to a specified amount at a later date.

present value factor

The number by which an amount of money to be paid later is multiplied in order to derive the present value of that money.

presumptive disability

A condition that, if present, automatically causes an insured to be considered totally disabled. Examples of presumptive disabilities are total and permanent blindness or loss of two limbs.

prima facie rate

In group creditor insurance in the United States, the standard premium rate recommended by state government regulators for a contributory policy. An insurer can not charge more than the prima facie rate when a contributory group creditor insurance policy is first issued. Contrast with deviated rate.

primary beneficiary

The party or parties who have first rights to receive policy benefits when the benefits of an insurance policy become payable.

primary provider of benefits

In a coordination of benefits situation, the medical expense plan that pays the full benefits provided by its plan before any benefits are paid by another medical expense plan.

principal

A party who authorizes another party, the agent, to act on the principal's behalf in contractual dealings with third parties.

probability

The likelihood of some event occurring. In mathematics, probability is the number of times that something is likely to occur out of a number of possible occurrences. Probability theory is an essential aspect of the mathematical foundations of insurance.

probationary period

See waiting period.

proceeds

The amount of money that the insurance company is obligated to pay for the settlement of a life insurance policy, endowment insurance policy, or annuity.

professional reinsurer

An insurance company whose only or major line of business is reinsurance.

profit sharing plan

An employee-benefit plan whereby the employer pays a portion of the company's profits to the employees. The employer's contributions are discretionary and may be (1) paid in cash or stock when profits are determined, (2) deferred to individual accounts for each employee, or (3) distributed by a combination of the two methods. Profit-sharing plans can be used as a source of retirement income or as a more short-term savings/investment vehicle.

property insurance

A type of insurance that provides a benefit if insured items are damaged or lost because of fire, theft, accident, or other cause described in the policy.

prototype plan

A standardized form of pension or other employee-benefit plan developed to simplify plan drafting for plan sponsors. Similar to a master plan.

provider fraud

A type of medical insurance fraud that is initiated by a medical care provider on patients' claims in order to increase the provider's own income. Contrast with individual fraud.

proximate cause of death

An event that is directly responsible for a death or an event that initiates an unbroken chain of events that lead to death.

prudent expert rule

The legal requirement that the sponsor or manager of a pension plan exhibit certain standards of competence and prudence in accounting for assets in a pension plan and investing the pension plan's funds.

pure endowment

An amount payable only to those people who survive for a certain period of time; those who do not survive that period of time receive nothing. Unless they are combined with some form of life insurance, pure endowments are generally illegal.

R | Top

rated policy

A policy issued to insure a person classified as having a greater-than-average likelihood of loss. The policy may be issued (a) with special exclusions, (b) with a premium rate that is higher than the rate for a standard policy, or (c) with exclusions and a higher than standard premium rate.

rate making

The calculation of premium rates for an insurance company's products. Actuaries consider several factors when they establish life insurance premium rates. The most important factors are mortality rates, interest rates, and loading.

rate of return method

A method of comparing the costs of life insurance policies wherein the key figure calculated is an annual interest rate, representing a rate of return. Also called the Linton yield method. See also cost comparison methods.

rating classes

The three different approaches that insurers take when they use mortality assumptions to calculate group life insurance premiums. The three rating classes for group premiums are manually rated premiums, experience rated premiums, and blended premiums. See also blended rates, experience rating, and manual rates.

rating manual

An abbreviated underwriting manual that includes only suggested ratings and a small amount of background information for each impairment listed. reasonable and customary charge The amount of money most frequently charged for certain medical procedures in a given geographical area. Medical expense insurance payments are often based on reasonable and customary charges.

rebating

An insurance sales practice that is prohibited in most of the United States and Canada. In rebating, the agent offers the prospect a special inducement to purchase a policy. The rebate is usually made in the form of a share of the agent's commission.

recording method

A method of changing the beneficiary of a life insurance policy in which the policyowner makes the change effective simply by notifying the insurance company in writing of the change. Also called the filing method. Contrast with endorsement method.

recovery benefit

A partial or residual disability benefit payable after an insured satisfies a qualification or an elimination period, returns to work, and then suffers a loss of earnings directly resulting from a preceding total or partial disability. Also known as income replacement benefit. See also partial disability benefit and residual disability benefit.

reduced paid-up insurance option

A nonforfeiture option under which the net cash value of a life insurance policy is used as a net single premium to purchase a smaller amount of fully paid insurance of the same kind and for the same period as the policy being surrendered.

refund annuity

A life annuity that specifies that at least the purchase price of the annuity will be paid out in benefits. See also life annuity.

regional director of agencies (RDA)

An insurance company employee responsible for appointing PPGAs to represent the company.

registered principal

Any person who is licensed with the National Association of Securities Dealers and who holds a management or supervisory position in a securities broker- dealer firm.

registered representative

Any person who is licensed with the National Association of Securities Dealers and who is engaged either in selling securities as the agent or representative of a broker-dealer or in training the sales persons associated with a broker-dealer.

reinstatement

The process by which a life insurance company puts back in force a policy that had lapsed because of nonpayment of renewal premiums.

reinstatement provision

A life insurance policy provision that describes the conditions the policyowner must meet in order for the insurer to reinstate the policy if it has terminated because of nonpayment of renewal premiums.

reinsurance

A transaction between two insurance companies in which one company purchases insurance from the other to cover part or all of the risks that the first company does not wish to retain in full. See also ceding company and reinsurer.

reinsurer

An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction. Also called the assuming company.

relation of earnings to insurance clause

A clause included in some guaranteed renewable or noncancellable individual disability policies that limits the amount of benefits in which an insurer will participate when the total amount of disability benefits from all insurers exceeds an insured's usual earnings. Also known as a participation limit.

relative value schedule

A surgical schedule which expresses the cost of a surgical procedure as a unit value rather than as a dollar amount. A procedure with a value of 20, for example, should cost twice as much as a procedure with a value of 10. See also fee schedule.

renewable term insurance

A type of term insurance which includes a renewal provision that gives the policyowner the right to renew the insurance coverage at the end of the specified term without submitting evidence of insurability.

renewal commissions

Those commissions paid to the agent for a specified number of years, usually nine, after the first policy year. The renewal commission rate is generally much lower than the first-year commission rate and is paid only on policies that remain in force.

renewal premiums

Premiums payable after the initial premium.

renewal provision

(1) An individual life insurance policy provision that gives the policyowner the right to continue the insurance coverage at the end of the specified term without submitting evidence of continued insurability. (2) A provision in an individual health insurance policy describing the circumstances under which the insurance company may refuse to renew the coverage, may cancel the coverage, or may increase the policy's premium rate.

replacement

The act of surrendering an insurance policy or part of the coverage of an insurance policy in order to buy another policy.

reportable event

In the United States, an event that indicates that the financial condition of a pension plan is or may be deteriorating to the point that the plan may be terminated. Such events must be reported to the Pension Benefit Guaranty Corporation (PBGC).

representation

A statement by an insurance applicant of facts upon which the insurer bases its decision as to whether or not to issue the policy as applied for.

rescission

An equitable remedy under which the insurer seeks to void a policy or have it declared void. Rescissions usually occur when there has been material misrepresentation in the insurance application.

reserve

Typically, the liability account that identifies the amount of assets needed to pay future claims. There are many different types of reserves. When the term "reserve" is used in the life insurance industry, it usually refers to the policy reserve. See policy reserve.

reserve for future contingent benefits

In health insurance, an amount established as a reserve for deferred maternity benefits and for any other claims that may have already been incurred but that may be contingent upon a future event or circumstances beyond the insurer's control.

reserve strengthening

The process of setting up additional policy reserves.

residual disability benefit

A partial disability benefit amount that is established according to a formula specified in a disability income insurance policy. The amount of the benefit varies according to the percentage of income loss attributable to the disability. See also partial disability benefit.

resisted claim

A claim that an insurer has refused to pay but that it may pay in the future.

restricted stock

Stock that is conditionally given by an employer to compensate an executive. In some instances, the executive is only granted full ownership of the stock if the executive continues to work for the company for a certain period of time.

result clause

A type of war hazard exclusion that excludes payment of benefits only for losses resulting from war or acts of war. Contrast with status clause.

retained asset account (RAA)

An interest-bearing money market checking account that is established by an insurer for the beneficiary of a life insurance policy, and into which the insurer deposits the policy's death benefit.

retention

(1) In reinsurance, the amount of a reinsured risk which the ceding company retains. (2) See retention charge.

retention charge

For a group insurance contract, the portion of the premium that is intended to cover expenses (other than claims) and to allow the insurance company to make a profit. Sometimes simply called retention.

retention limit

The maximum amount of insurance that an insurance company will carry at its own risk on any individual without ceding part of the risk to a reinsurer.

retired lives reserve

A fund that some employers establish and pay into on behalf of employees while they are employed in order to provide group life insurance to the employees after they retire.

retroactive disability benefit

A type of disability benefit that is payable from the date of disability. The first payment is not made, however, until an elimination period has been satisfied.

retro premium

In group insurance, a premium rate agreed upon by the insurer and policyholder at the beginning of a premium-paying period but paid at the end of the period only if the group's claim experience warrants it. The insurer collects a lower base premium at the beginning of the period and, if necessary, charges the retro premium retroactively at the end of the period.

retrospective-rating arrangement

An alternative funding method for a group insurance contract whereby the insurer collects only a percentage (often between 90% and 95%) of the premium from the policyholder at the beginning of the premium-paying period and collects the rest of the premium at the end of the period, unless the group's claim experience is better than expected and the additional premium therefore is not owed. With this system the policyholder retains control of part of the premium for a longer time than with the traditional system.

retrospective review

A component of a utilization review program that provides an insurer with periodic reports on physicians' practice patterns and hospitals' average lengths- of-stay.

revocable beneficiary

A named beneficiary whose right to life insurance policy proceeds is not vested during the insured's lifetime and whose designation as beneficiary can be cancelled by the policyowner at any time prior to the insured's death. See also beneficiary.

rider

An amendment to an insurance policy that becomes a part of the insurance contract and expands or limits the benefits payable. Also called an endorsement.

right of survivorship

A stipulation sometimes included in assignments of life insurance policies which provides that if an assignee dies, the assignee's survivors are entitled to his or her portion of the assignment.

risk class

A group of insureds who present a substantially similar risk to the insurance company. Among the most common risk classes used by life insurance companies are standard, preferred, nonsmoker, substandard, and uninsurable.

rollover

In the United States, the tax-free transfer of account balances to an individual retirement account from a qualified retirement plan or another individual retirement account.

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