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Tools & Resources » General Insurance Term Glossary

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safety margin

In life insurance, the safety margin is the amount by which actuaries increase the probability of mortality for each age group in a mortality table. The safety margin helps protect the insurance company from adverse experience.

salaried sales agents

Insurance sales representatives who are employees of the insurer and who are usually paid on a salary plus incentive compensation basis. Salaried sales personnel may work with other agents or independently, may make sales directly to consumers or promote the sale of an insurer's products through other intermediaries, and are often used to distribute group insurance and pension products. Also known as salaried sales representatives.

salaried sales distribution system

A distribution system that uses salaried employees of the insurance company to sell and service policies. Salaried sales personnel may work either with agents or independently and are often used to distribute group insurance products.

salary continuation plan

A disability or sick-leave plan which provides for employees to continue to receive up to 100 percent of their salary for a limited number of days if they become ill or disabled. The number of days per year granted to an employee generally increases as the employee's length of service increases. Most such plans are self-insured. Also known as a sick-leave plan.

salary-reduction plan

A plan whereby an employee authorizes the employer to reduce the amount of compensation that the employee receives in cash and to contribute the difference to a group insurance, pension or other employee-benefit plan.

sales illustration

A graphic representation used by an agent to help explain an insurance product to a potential customer. Sales illustrations often consist of numeric charts describing the customer's goals and the cost elements and mechanics of the insurance product being proposed. Sometimes simply called an illustration.

savings bank life insurance (SBLI)

In the United States, life insurance coverage sold by authorized savings banks to people who live or work in the state in which the insurance is sold. Savings bank life insurance is permitted in three states—Massachusetts, New York, and Connecticut.

savings plan

A defined contribution plan offered by an employer or other plan sponsor to give employees/participants a vehicle for investing funds for retirement or other needs. Most plans feature employer matching of employee contributions, and plan participation is voluntary. Also known as a thrift plan.

scheduled dental plan

A dental plan which pays fixed benefits for specific procedures according to a schedule. See also combination dental plan and unscheduled dental plan.

second-to-die life insurance

See survivorship life insurance.

Section 401(k) Plan

In the United States, a qualified cash or deferred profit-sharing or stock-bonus plan which allows participants to decide how much of their compensation is deferred. Participant contributions are not taxable until the funds are withdrawn, and sponsor contributions as well as investment earnings are also tax-deferred to the participant. Also called a Cash or Deferred Arrangement (CODA).

segmentation

A process by which an insurer divides its general account investments into distinct parts, or segments, that correspond with each of the insurer's major lines of business. For example, one segment can be used to account for group life insurance investments, while another can be used to account for individual life insurance investments.

self-administered group insurance plan

Under this type of group insurance plan, the group policyholder rather than the insurer performs most of the administrative work for the plan. The policyholder maintains detailed records of group membership, processes routine requests, such as requests for beneficiary changes and name and address changes, prepares its own premium statements, and, in some cases, prepares certificates for new group members.

self-insured group insurance

A form of group insurance in which the group sponsor, not an insurance company, is financially responsible for paying claims made by group insureds. A group may be partially or fully self insured. See also administrative services only (ASO) contract.

separate account

An account maintained separately from a life insurance company's general accounts to help manage the funds used for nonguaranteed insurance products. By maintaining separate accounts, insurance companies are able to modify some of their investment strategies without affecting the funds in the general accounts. See also general account and investment-sensitive life insurance.

separate account contract

A pension plan funding vehicle in which a pension's assets are invested through an insurer's separate account. A separate account contract usually does not guarantee investment performance. Also called an investment facility contract.

settlement

(1) See financial settlement. (2) In the United States, an irrevocable action that relieves the plan or plan sponsor of the obligation for a pension benefit and that eliminates the risk to the plan assets used to carry out the settlement. One example of a settlement is payment of a lump-sum benefit to a plan participant, thus discharging any further benefit obligation to the participant. Settlement is defined in FASB Statement No. 88.

settlement agreement

The arrangement made between an insurer and a policyowner (or beneficiary) concerning the manner in which the insurer will pay the policy proceeds to the beneficiary. See also settlement options.

settlement option payments

Periodic payments made by an insurance company in lieu of an immediate lump- sum payment of life insurance policy proceeds.

settlement options

Choices given to the policyowner or the beneficiary of a life insurance policy regarding the method by which the insurer will pay policy proceeds. Also known as optional modes of settlement. See also fixed amount option, fixed period option, interest option, joint and survivorship option, life income option, life income option with period certain, life income option with refund, and straight life income option.

settlement option table

A table showing the various amounts that the insurance company will pay as periodic payments in the settlement of a life insurance policy.

short-form reinstatement application

A reinstatement application that asks a few questions designed to guard against reinstatements by insureds whose conditions have changed drastically since the premium due date. A short-form reinstatement application is generally used for reinstatements requested within a comparatively short period, such as 30 to 90, days after the end of the grace period.

short-term disability income insurance

Disability income insurance which provides a benefit for a short disability or for the first part of a long disability. See also disability income insurance, long-term disability income insurance, and weekly indemnity plan.

simplified employee pension (SEP)

In the United States, a pension plan in which an employer contributes money to an individual retirement account (IRA) for each employee covered by the plan. The IRA is owned by the employee, not the employer. A SEP is especially useful to employers who cannot afford the time or money needed to administer and maintain a more complicated pension plan. SEP's may also be used by self- employed persons.

simultaneous death act

A state or provincial law which provides that if the insured and the primary beneficiary both die under conditions in which it is impossible to determine which one died first, the insured will be presumed to have survived the primary beneficiary unless there is a policy provision to the contrary.

single premium annuity

An annuity that is purchased with only one premium payment. A single premium annuity can be an immediate annuity or a deferred annuity.

single-premium deferred annuity (SPDA)

A deferred annuity for which only one premium payment is made.

single-premium method

In group creditor insurance, a premium-paying arrangement for contributory plans whereby, at the inception of the loan, the entire premium amount for the insurance is either paid in a lump sum by the borrower or added to the principal of the loan. Contrast with monthly outstanding balance method.

single purchase annuity contract

A group contract in which a single premium is applied to purchase annuities for participants in a pension plan that is terminating. Immediate annuities are purchased for current retirees in the plan, and deferred annuities are purchased for participants who have not yet reached retirement age.

six and six exclusion

A pre-existing conditions exclusion commonly used in credit disability policies, which states that an insured's disability is not covered if the insured (1) was treated for the condition within six months prior to the effective date of coverage and (2) becomes disabled from that same condition within six months after the effective date of coverage.

small estates statutes

Legislation that enables an insurer to pay relatively small amounts of policy proceeds to an estate without involved court proceedings.

small group insurance plan

A type of group life insurance plan that uses group underwriting techniques but adds some degree of simplified individual underwriting and is designed to cover groups containing 2 to 25 people. Also called a baby group plan.

social insurance supplement policy

A medical expense policy sold by insurance companies to provide benefits that complement the benefits available from a specified government health insurance program.

Social Security

In the United States, a program of the United States federal government that provides retirement income, health care for the aged, and disability coverage for eligible workers and their dependents.

Social Security Disability Income (SSDI)

In the United States, a long-term disability income program that provides benefits to disabled workers who are under age 65 and who have paid a specified amount of Social Security tax for a prescribed number of quarter-year periods.

sole proprietorship insurance

Insurance on the life of the sole proprietor of a business. Sole proprietorship insurance is used either to pay the salary of someone hired to run the business after the owner's death or disablement or to compensate the owner's family for the loss of potential income due to the failure of the business after the owner's death or disability.

soliciting agent

Typically, an insurance agent who works under a general agent or a branch manager. The soliciting agent is the person who actually contacts prospective customers, delivers policies, and collects initial premiums. See also insurance agent.

specified expense coverage

Health insurance coverage which provides benefits for specific medical supplies or treatments or for specific illnesses. Examples include dental expense coverage, vision care coverage, prescription drug coverage, long-term care (LTC) coverage and dread disease coverage. See also limited coverage policy and long-term care (LTC) insurance.

spendthrift trust clause

A life insurance policy provision that protects, under certain conditions, policy proceeds held by the insurer from being seized by a beneficiary's creditors.

split-dollar insurance plan

A type of business insurance in which an employee is covered by individual life insurance that is paid for jointly by the employee and the employer. The employee names the beneficiaries. Each year the employer pays the portion of the premium that is equal to the increase in the policy's cash value for that year, and the employee pays the balance of the premium. If the employee dies, the employer will receive an amount of the proceeds equal to the cash value of the policy, while the beneficiaries of the policy will receive the remaining benefits.

split funding

A method of funding a pension plan in which a portion of the total contributions to the plan are used to purchase an allocated funding instrument while the remainder of the contributions are placed in an unallocated fund.

spouse and children's insurance rider

An addition to a life insurance policy that provides coverage for a spouse and/or children.

stacking

The practice of ignoring benefits payable under public pension plans in the design or selection of private pension plans. When no attempt is made to integrate benefits from a public and a private pension plan, the two plans are said to be "stacked."

Standard Nonforfeiture Law

A law, which is virtually uniform in all states, specifying the minimum cash values required to be provided by life insurance policies.

standard plan termination

In pension and employee-benefit plan terms, the process of terminating a plan which has sufficient funds to cover all the benefit amounts to which the plan's participants are entitled. Contrast to distress termination. See also involuntary plan termination and voluntary plan termination.

standard premium rate

The premium rate charged for insurance on a person classified as having an average likelihood of loss.

standard risk class

A risk class made up of individuals whose anticipated likelihood of loss is regarded as average. People in the standard risk class pay standard premium rates. Most insureds are included in the standard risk class.

Standard Valuation Law

A law, which is virtually uniform in all states, specifying minimum standards for calculating, or valuing, insurance reserves.

status clause

A type of war hazard exclusion that excludes payment of benefits for any loss occurring while an insured is in military service. Contrast with result clause.

statutory accounting practices (SAP)

The accounting methods and principles that apply to the completion of the statutory Annual Statement which life insurance companies are required to submit to regulatory authorities.

statutory reserve

A reserve that is reported to government authorities, as required by statutes. Also called a legal reserve. See also policy reserve.

stock bonus plan

An employee-benefit plan whereby part of the employees' compensation is in the form of the employer's stock. Most stock bonus plans are maintained in the same fashion as profit-sharing plans, but the employer's stock contributions are not necessarily related to profits. As with profit-sharing plans, employer contributions are most often discretionary, and the plan may not be intended as a retirement plan.

stock insurance company

An insurance company that is owned by people who buy shares of the company's stock.

stock option incentive

An incentive plan for executives whereby an employer offers to sell the company's stock to the executive at a certain price on a certain date. It is in the executive's interest for the company to do well and the stock's value to rise. If the stock's value does rise, the executive may, by exercising the stock option, be able to buy the company's stock at a price below the stock's market value, thus making a paper profit (if the stock is or must be held) or a realized profit (if the stock is sold at the higher price).

stock repurchase insurance

Life insurance intended to finance the purchase of stock from the estate of a deceased stockholder by other stockholders in the same company. Typically used for closely-held corporations that have few stockholders. See also business-continuation insurance.

stop-loss provision

A health insurance policy provision specifying that the insurer will pay 100 percent of the insured's eligible medical expenses after the insured has incurred a specified amount of out-of-pocket expenses under the coinsurance feature.

straight life annuity

An annuity that provides periodic payments to the annuitant for as long as the annuitant lives and that provides for no benefit payments after the annuitant's death.

straight life income option

A life insurance policy settlement option under which payments to the beneficiary-payee will continue until the payee's death, after which no further payments are made.

substandard broker

A general agent who runs a brokerage shop specializing in finding coverage for substandard cases or selling the products of several insurers with expertise in underwriting substandard risks.

substandard premium rate

The premium rate charged for insurance on an insured person classified as having a greater than average likelihood of loss. This premium rate is higher than a standard premium rate.

substandard risk class

A risk class made up of people with medical or nonmedical impairments that give them a greater than average likelihood of loss. Substandard risks pay higher- than-standard premiums.

successor owner

A person designated to become the owner of a life insurance policy if the owner dies before the person insured by the policy dies. In Quebec, known as the contingent owner.

suicide clause

Life insurance policy wording which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time (usually two years) after the policy's date of issue.

Summary Plan Description (SPD)

(1) In the United States, a document required by ERISA to provide information about a pension plan to plan participants in simple language. The SPD must, among other requirements, identify the plan's administrator and those who are responsible for managing the plan's assets, must explain the plan's eligibility requirements and the circumstances under which a plan participant could forfeit his or her benefits under the plan, and must explain the procedures for making claims under the plan. (2) In the United States, a description of various aspects of a group insurance plan which must be provided to all plan participants and to the Department of Labor.

superimposed major medical plan

A major medical plan that is coordinated with various basic medical expense coverages and that provides benefits for expenses that exceed these coverages.

supplemental executive retirement plan (SERP)

A nonqualified deferred compensation retirement plan designed to provide benefits for a group of executives, without regard to benefits provided under a qualified retirement plan.

supplemental group life insurance

Life insurance over and above the basic coverage provided by a group policy. The supplemental coverage may provide an additional amount of the same type of insurance or may provide a different type of insurance. Supplemental coverage is usually contributory and subject to stricter underwriting standards than is the basic group coverage.

supplemental major medical insurance

Major medical insurance providing benefits over and above those benefits paid by basic hospital-surgical expense insurance.

supplementary benefit rider

A rider that is added to an insurance policy to provide additional benefits. Some typical supplementary benefit riders are accidental death coverage, waiver of premium, and the guaranteed insurance option. See also rider.

supplementary contract

A contract between the insurer and the beneficiary of a life insurance policy. A supplementary contract is formed when policy proceeds are applied under a settlement option.

supplementary notice

As required by the Fair Credit Reporting Act, notice to a consumer of the nature and scope of the investigation mentioned in the pre-notice form that an insurance company has already sent to the consumer.

supplementary statement

Under the NAIC Model Privacy Act, a written statement made by a person who has been investigated. The supplementary statement is intended to correct what the investigated person believes to be incorrect information in his or her file. This statement must remain with the disputed information in the person's file and must be made available to anyone reviewing the disputed information.

surrender charge

(1) An amount of money deducted from a policy's reserve to arrive at the policy's cash value. (2) The expense charges applied when the owner of a back-loaded policy surrenders the policy for its cash value.

survivor income benefit insurance

A type of group life insurance which provides income benefits if the insured is survived by a "qualified survivor." Usually the qualified survivor category includes only the insured's spouse and children.

survivorship clause

A life insurance policy provision, inserted at the request of the policyowner, which provides that the beneficiary must survive the insured by a stated number of days in order to receive the death benefit. Also called a delay clause or a time clause.

survivorship life insurance

A type of whole life insurance which insures two people and pays benefits only after the second person dies. It is generally designed to provide funds to pay estate taxes. Also called second-to-die life insurance.

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target-benefit pension plan

A defined contribution plan where the contribution amount is designed to provide the participant with a specific (or "target") benefit. However, the sponsor does not guarantee the benefit, so no adjustment is made if actual investment results (or other variables) differ from initial projections. At retirement, the funds in the employee's account may be paid in a lump sum or used to purchase an annuity.

temporary insurance agreements

Legal agreements between an insurer and a proposed insured that provide a guaranteed amount of temporary life insurance coverage for a specific period of time, usually the underwriting period. Also known as interim insurance agreements and temporary insurance receipts.

temporary life annuity

A series of regular periodic payments, each of which is made only if a designated person is then alive, with the number of such payments limited to a specified number.

terminal policy dividend

A substantial extra dividend or pro-rata dividend covering the period between the last policy anniversary date and the termination date of the policy.

termination expenses

The cost of processing death benefit claims and cash surrenders.

term insurance

Life insurance under which the benefit is payable only if the insured dies during a specified period. See also convertible term insurance, credit life insurance, decreasing term insurance, deposit term insurance, family income insurance, increasing term insurance, level term insurance, mortgage redemption insurance, and renewable term insurance.

territory

(1) The geographical area for which a home service agent has exclusive responsibility. Home service districts are divided into territories. Also called an account, an agency, or a debit. (2) The geographical area for which an insurance agent or general agent has responsibility.

testamentary disposition

In life insurance, the use of a will to indicate the person or party to whom the proceeds of a life insurance policy should be distributed.

third-party administrator (TPA)

An organization that administers an insurance contract for a self-insured group but that does not have financial responsibility for paying claims. The self-insured group pays its own claims. See also administrative services only (ASO) contract and self-insured group insurance.

third-party application

An insurance application submitted by a person or party other than the proposed insured.

third-party endorsement

A method of marketing individual insurance to groups. In the third-party endorsement method, a life insurance company makes an agreement with an organization (such as a club, a business, or a professional association) to sell individual insurance to members or employees of the organization. The organization endorses the insurer's products, but the group members are free to buy the products or not.

third-party insurance

Insurance coverage applied for by someone other than the proposed insured.

three-factor contribution method

A method for calculating policy dividends, considering separately the contributions arising from interest, mortality, and loading.

total disability

When a disability begins, it is typically considered a "total disability" if it prevents an insured person from performing the essential duties of his or her regular occupation. Under many insurance policies, the definition of total disability changes at the end of a specified period after the disability begins, usually two years. Therefore, insureds are considered totally disabled only if their disabilities prevent them from working at any occupation for which they are reasonably fitted by education, training, or experience. See also disability.

total-needs programming

A basis for selling life insurance in which the agent takes into consideration all the prospect's financial needs, calculates the amount of money required to take care of all those needs, determines the amount of funds that will be available when the prospect dies, and calculates the amount of life insurance required to provide the difference. Sometimes called financial planning. Contrast to single- need selling.

traditional net cost (TNC) method

An insurance policy cost comparison method that is prohibited by the NAIC Model Life Insurance Solicitation Regulation primarily because it ignores the time value of money.

travel accident benefit

An accidental death benefit often included in group insurance policies issued to employer-employee groups. This benefit is payable only if an accident occurs while an employee is traveling for the employer.

triple indemnity

A type of accidental death benefit coverage that pays an additional benefit equal to twice the policy's basic death benefit if the accident is sustained while the insured is a passenger in a public conveyance operated by a licensed common carrier, such as a bus, train, or airplane.

trust agreement

In a trusteed pension plan, the contract between the plan sponsor and the trustee that describes the trustee's authority and responsibilities for investing and administering plan assets. Trust agreements are also found when group insurance is provided through a multiple-employer trust (MET).

trusteed pension plan

A pension plan in which the plan sponsor chooses a trustee to be responsible for investing the plan's assets or for choosing an investor for the plan's assets. Also known as a pension trust.

trust fund plan

A pension plan under which employer and employee contributions are forwarded to a trustee, who is responsible for investing the contributions and is often responsible for making benefit payments to plan participants. The duties of the trustee, who may be an individual or an institution such as a bank trust department, are spelled out in a trust agreement. A trustee generally does not guarantee that the trust fund will be adequate to pay current and future pension benefits.

twisting

A form of misrepresentation in which an agent induces a policyowner to cancel an insurance policy and use the cash value of that policy to buy a new policy. In the process, the agent does not inform the policyowner of the differences between the two policies nor the financial consequences of the replacement. Twisting involves a misleading or incomplete comparison of the policies to the disadvantage of the policyowner. Twisting is a prohibited insurance sales practice.

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ultimate cost

The total net cost, including the cost of all benefits and expenses, incurred by a pension plan over the life span of the plan.

unallocated funding

A method of funding a pension plan in which the pension funds as a whole are held and managed by a funding agency, often an insurance company, and are not allocated to specific plan participants. When a participant retires, the funding agency either purchases an annuity for the retiree or pays periodic benefits directly from the fund. However, the funding agency makes no contractual promises that it will pay any specific benefit amounts. Contrast with allocated funding.

unbundled insurance product

An insurance product in which the mortality, investment, and expense factors used to calculate premium rates and cash values are each identified in the policy. Some nontraditional products, such as universal life insurance, are unbundled. See also bundled insurance product.

unclaimed benefits

Policy benefits for which no payee can be found. Under typical state statutes for unclaimed property, when an insurer cannot locate anyone entitled to policy benefits, the insurer will hold the unclaimed benefits for seven years and then turn them over to the state. Usually, the unclaimed property statute of the state of the beneficiary's last known address applies. If no address is known, the statute of the insurer's state of domicile will govern.

unclaimed property statutes

Statutes that regulate the disposition of funds for which no owner can be found. Insurers typically hold unclaimed property for seven years. If the rightful owner is not found during this time, the property is turned over to the state. Also known as escheat laws. See also unclaimed benefits.

underwriter

(1) The person who assesses and classifies the potential degree of risk that a proposed insured represents. (2) The person or organization that guarantees that money will be available to pay for losses that are insured against. In this sense, the insurance company is the underwriter.

underwriting

(1) The process of assessing and classifying the potential degree of risk that a proposed insured represents. Also called selection of risks. (2) Providing guarantees that money will be available to pay for losses that are insured against.

underwriting department

The department in a life and health insurance company that selects the risks that the company will insure. The underwriting department tries to make sure that the actual mortality or morbidity rates of the company's insureds do not exceed the rates assumed when premium rates were calculated. The underwriter considers an applicant's age, weight, physical condition, personal and family medical history, occupation, financial resources, and other selection factors to determine the degree of risk represented by the proposed insured. This department also participates in the negotiation and management of reinsurance agreements, through which an insurance company transfers some or all of an insurance risk to another insurance company. Also called the new business department.

underwriting impairments

Factors that tend to increase an individual's risk above that which is normal for his or her age.

underwriting manual

A summary of the methods used by a particular insurer to evaluate and rate risks. The underwriting manual provides underwriters with background information on underwriting impairments and serves as a guide to suggested underwriting actions when various impairments are present. See also risk class.

underwriting requirements

Printed instructions that indicate what evidence of insurability is required for a given situation and which of several optional information sources will be needed to provide underwriters with necessary information. Sources of information may include medical records and the results of physical examinations. Underwriting requirements are graduated based on the proposed insured's age and the amount of coverage requested.

unilateral contract

A contract in which only one party promises to do something. A life insurance policy is a unilateral contract.

uninsurable risk class

The group of people with a risk of loss so great that an insurance company will not offer them insurance.

union welfare fund or union welfare trust

A fund organized by a union and one or more employers to which contributions are made by the employer(s) so that group benefits can be made available to the union's members.

unit-benefit formula

A method of calculating benefits for a defined benefit pension plan based on years of service. The formula may take into account only years of service (for example, $50 per month for each year of service) or years of service and compensation.

utilization review

A method of claims review whereby the insurer analyzes a case, either prospectively, concurrently, or retrospectively, to determine if the treatment given is necessary and appropriate. See also managed care.

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