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Additional life insurance purchased with policy dividends. No additional premiums
are needed for paid-up additions. Also called dividend additions.
An insurance policy that will provide benefits in the future but that requires no
further premium payments.
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.
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.
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.
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.
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.
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.
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.
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.
For any individual, the maximum amount that a medical expense policy will pay
for medical expenses resulting from any particular illness or injury.
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.
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.
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
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.
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
A person on whose behalf contributions are made or benefits are accrued under
a pension or employee-benefit plan.
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.
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
The anniversary of the date on which a policy was issued. Sometimes simply
called the anniversary.
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.
The process of obtaining legal permission to sell an insurance product in a
(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.
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.
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.
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
The statements, following the face page of an insurance policy, that describe the
operation of the insurance contract.
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.
The 12-month period between a policy's anniversaries.
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.
(1) A group of investments managed or owned by an individual or organization. (2)
All of the products offered by an insurance company.
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).
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.
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
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.
(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.
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.
Amounts that are left on deposit with the insurer for the payment of future
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.
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 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.
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.
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
A party who authorizes another party, the agent, to act on the principal's behalf in
contractual dealings with third parties.
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.
See waiting period.
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.
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.
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.
A standardized form of pension or other employee-benefit plan developed to
simplify plan drafting for plan sponsors. Similar to a master plan.
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
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.
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
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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.
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.
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
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.
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
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
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
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
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
Any person who is licensed with the National Association of Securities Dealers
and who holds a management or supervisory position in a securities broker-
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.
The process by which a life insurance company puts back in force a policy that
had lapsed because of nonpayment of renewal premiums.
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.
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.
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
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.
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
Premiums payable after the initial premium.
(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.
The act of surrendering an insurance policy or part of the coverage of an
insurance policy in order to buy another policy.
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
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.
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.
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
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.
A claim that an insurer has refused to pay but that it may pay in the future.
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.
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.
(1) In reinsurance, the amount of a reinsured risk which the ceding company retains.
(2) See 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.
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
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.
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.
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.
A component of a utilization review program that provides an insurer with
periodic reports on physicians' practice patterns and hospitals' average lengths-
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
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.
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.
In the United States, the tax-free transfer of account balances to an individual
retirement account from a qualified retirement plan or another individual