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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.
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.
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
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).
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
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
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.
(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.
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.
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
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-
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.
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
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.
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
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.
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
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.
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.
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
stock insurance company
An insurance company that is owned by people who buy shares of the
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
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
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.
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-
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
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.
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
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.
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.
(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.
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
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.
The cost of processing death benefit claims and cash surrenders.
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.
(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.
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.
An insurance application submitted by a person or party other than the proposed
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.
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.
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.
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-
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.
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.
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
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
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The total net cost, including the cost of all benefits and expenses, incurred by a
pension plan over the life span of the plan.
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
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.
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.
(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.
(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
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.
Factors that tend to increase an individual's risk above that which is normal for
his or her age.
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.
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.
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
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
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.