Glossary of Insurance Related Terms

Cafeteria plan

An employee benefit plan that gives each employee several choices as to the types and/or amounts of group benefits.

Cancellation

The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Capacity

The largest amount of insurance an insurer or a reinsurer is willing or able to underwrite. The term can refer to an insurer’s capacity on one individual or to the insurer’s capacity for all its business.

Capital Retention Approach

A method used to estimate the amount of life insurance to own. Under this method, the insurance proceeds are retained and are not liquidated.

Capital Stock and Surplus

Represents the excess of a company's assets over its liabilities as reported in its financial statements. Stock companies have capital stock and surplus. Capital stock represents funds paid into the company by stockholders. Surplus represents the remaining excess of assets over liabilities. Mutual companies only have surplus since there are no stockholders in a mutual company.

Captive Agent

Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive range of employee benefits such as pensions, life insurance, health insurance and credit unions.

Captive agents

Career agents who are under contract with one insurance company only and who are not permitted to sell the products of other insurers.

Carrier

The underwriting insurance company.

Carry-over provision

A provision found in most medical expense policies stating that expenses incurred during the last three months of a benefit period that are used to satisfy the current benefit period’s deductible may be used to satisfy any or all of the following benefit period’s deductible.

Case management

A utilization management technique that addresses the medical necessity of care as well as alternative treatments or solutions, especially when the patient is likely to require very expensive treatment.

Cash (Surrender) Value

The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Cash Equivalents

Investments that are highly liquid and safe, and considered equal to cash. Examples are treasury bills, money market funds and short-term CDs and bonds (maturities of six months or less).

Cash payment option

A life insurance policy dividend option under which policy dividends are paid to the policyowner in cash.

Cash Refund Annuity

A form of annuity contract which provides that if at the death of the annuitant installments paid to him have not totaled the amount of the premium paid for the annuity, the difference will be paid to a designated beneficiary in a lump sum. (LI)

Cash refund option

A form of the life income option with refund which specifies that any proceeds remaining when the beneficiary dies will be paid in a lump sum to the contingent payee.

Cash surrender value

(1) In a life insurance policy, the amount of money, adjusted for factors such as policy loans or late premiums, that the policyowner will receive if the policyowner cancels the coverage and surrenders the policy to the insurance company. Also called the net cash value. Compare to cash value. (2) In an annuity, the amount that a contractowner will receive if he surrenders a deferred annuity. This amount is equal to the accumulated value of the annuity less any surrender charges specified in the policy.

Cash value

In a life insurance policy, the amount of money, before adjustment for factors such as policy loans or late premiums, that the policyowner will receive if the policyowner allows the policy to lapse or cancels the coverage and surrenders the policy to the insurance company. Cash values are a feature of most types of permanent life insurance, such as whole life and universal life.

Cash Value Life Insurance

A type of insurance where premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the company and builds up a cash value that may be used in a variety of ways. You may borrow against a policy’s cash value by taking a policy loan. If you don’t pay back the loan and the interest on it, the amount you owe will be subtracted from the benefits when you die, or from the cash value if you stop paying premiums and take out the remaining cash value. You can also use your cash value to keep insurance protection for a limited time or to buy a reduced amount without having to pay more premiums . You also can use the cash value to increase your income in retirement or to help pay for needs such as a child’s tuition without canceling the policy. However, to build up this cash value, you must pay higher premiums in the earlier years of the policy. Cash value life insurance may be one of several types; whole life, universal life and variable life are all types of cash value insurance.

Cede

To transfer risk from a direct insurer to his reinsurer.

Ceding company

In a reinsurance transaction, the insurer that purchases reinsurance to cover all or part of those risks that it does not wish to retain in full. Also called the direct insurer, direct writer, or direct-writing company.

Ceding Insurer

One who cedes a risk to his re insurers or retro cessionaries.

Certain payment

A payment that, not being contingent upon any predesignated condition, will definitely be made under any circumstances.

Certificate of assumption

In assumption reinsurance, a certificate sent to each policyholder whose policy has been ceded to give the policyowner (1) notice of the assumption and (2) information concerning the new insurer.

Certificate of indebtedness

A certificate issued by an insurer to the beneficiary of a life insurance policy that specifies a guaranteed minimum interest rate and the frequency with which the insurer will make interest payments under the interest settlement option.

Certificate of insurance

A document that describes the coverage provided by a group insurance policy and that is distributed by the group policyholder to each group insured.

Cession

Amount of the insurance ceded to a reinsurer by the original insuring company in a reinsurance operation.

Cestui Que Vie

The person whose life measures the duration of a trust, gift, estate, or insurance contract. Thus, in Life and Health Insurance it is the person on whose life or health the policy is written, commonly called the insured, policyholder, or policy owner. (LI,H)

Change of Beneficiary Form

A form provided by the insurer that the policyowner must complete in order to change the beneficiary on a policy.

Chartered Life Underwriter (CLU)

An individual who has attained a high degree of technical competency in the fields of life and health insurance and who is expected to abide by a code of ethics. Must have minimum of three years of experience in life or health insurance sales and have passed ten professional examinations administered by The American College.

Chicago Plan

See Financed Insurance. (LI)

Child Rider

Rider which provides insurance to the insured's child(ren).

Claim

A request for payment under the terms of an insurance policy.

Claim investigation

The process of obtaining necessary claim information in order to decide whether or not to pay a claim.

Claimant

The person or party making a formal request for payment of benefits due under the terms of an insurance contract.

Claims Notification Clause

A clause in a policy which provides for prompt notification of claims and commonly designates a specific adjuster to receive notice and deal with the claim.

Classified Insurance

Life or Health Insurance on risks which do not meet the standards for the regular manual rate. See also Substandard. (LI,H)

Cleanup Fund

A commonly used term to designate policies whose express purpose is to pay final expenses of death. (LI)

COLA

An increase in a pension benefit, disability income benefit or life income benefit to compensate for an increase in the cost of living.

Collateral Assignment

A temporary transfer of some, but not all, policy rights to a lender to provide security for a loan.

Collection Commission

A percentage of premiums collected which is paid to an agent as the commission on his collections of Debit Life Insurance premiums. (LI)

Collection Fee

An Industrial Life Insurance agent's fee allowed as his compensation for making policy premium collections for which he is not being paid a commission. (LI)

College Retirement Equities Fund (CREF)

A separate organization affiliated with the Teachers Insurance Annuity Association. It introduces and sells a variable annuity to college and university personnel. (LI)

Collegia

Groups of associations in ancient Rome that were influential historically in the development of Life Insurance and pensions. They were the forerunners of mutual benefit societies or friendly societies. (LI)

Combination

A term used to describe an agent, agency or insurer that sells both Industrial Life Insurance and Ordinary Life policies. (LI)

Combination Plan

In pensions this is a term applied to the combining of Life Insurance contracts with a fund called a side fund or auxiliary fund. The purpose is to increase the amount of money available for a pension or annuity at some future date. (LI)

Combination Plan Reinsurance

A form of combined reinsurance which provides that in consideration of a premium, which is a fixed percentage of the ceding company's subject premium on the business covered, the reinsurer will indemnify the ceding company for the amount of loss of each risk in excess of a specified retention and subject to a specified limit and, after deducting the excess recoveries on each risk, the reinsurer will indemnify the ceding company against a fixed quota share percent of all remaining losses. (LI)

Combined Annuity Mortality Table

A mortality table which was published in 1928 for use in determining rates for group annuities. (LI)

Combined Ratio

A measure of the relationship between dollars spent for claims and expenses and premium dollars taken in; the sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every premium dollar taken in, more than a dollar went for losses, expenses, and commissions.

Commission

The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing the insurance.

Commissioner

A state officer who administers the state's insurance laws and regulations. In some states, this regulator is called the director or superintendent of insurance.

Commissioners' Disability Table

A morbidity table approved by the National Association of Insurance Commissioners in 1964 for use in setting legal minimums for Disability Income Insurance policy reserves. (LI)

Commissioners' Industrial Extended Term Mortality Table, 1961 (CIET 1961)

An industrial mortality table approved by the NAIC for evaluation and computation of Extended Term Insurance in Industrial policies, where additional mortality margins are deemed necessary. This is a companion table to the CSI 1961. (LI)

Commissioners' Standard Industrial Mortality Table, 1961 (CSI 1961)

An industrial mortality table approved by the NAIC as a standard for evaluation and for computation of nonforfeiture values for Industrial policies. (LI)

Commissioners' Standard Ordinary (CSO)

A mortality table approved by the NAIC in 1958 as a standard for evaluation and for computation of nonforfeiture values for Ordinary Life policies. The CSO 1941 tables superseded the long-used American Experience Table, compiled in 1868, and the American Men Table, published in 1918 but never as widely used as the American Experience Table. The CSO 1958 superseded the CSO 1941 and is now required as a minimum basis for use by all companies. (LI)

Common Accident

An accident in which two or more persons are injured. (LI)

Common Disaster

A situation in which the insured and the beneficiary appear to die simultaneously with no clear evidence of who died first. (LI)

Common Disaster Clause

A clause sometimes added to a Life Insurance policy that provides a means for the insurer to distribute the proceeds of the policy in the event of a common disaster. (LI)

Commutation Rights

The right of a beneficiary to receive in one sum the unpaid payments remaining under an installment option which was selected for the settlement of the proceeds or values of a Life Insurance policy. (LI)

Concealment

Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.

Conditional Binding Receipt

This is the more exact terminology for what is often called a binding receipt. It provides that if a premium accompanies an application, the coverage will be in force from the date of application or medical examination, if any, whichever is later, provided the insurer would have issued the coverage on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting information. A Life and Health Insurance policy without a conditional binding receipt is not effective until it is delivered to the insured and the premium is paid. (LI,H)

Conditional premium receipt

A type of premium receipt that specifies certain conditions that must be met before temporary life insurance coverage will become effective.

Conditional Receipt

A receipt given for premium payments accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of the prepayment or the date on which the last of the underwriting requirements, such as a medical examination, has been fulfilled.

Conditional Vesting

A form of vesting in a contributory pension plan under which entitlement to a vested benefit is conditional upon nonwithdrawal of the participant's contribution. The attainment of a benefit right by a participant, attributable to employer contributions, that is not contingent upon a participant's continuation in specified employment. See also Contingent Vesting, Deferred Vesting, and Immediate Vesting. (LI)

Conservation

An agent’s or an insurer’s efforts to prevent a policy from lapsing.

Consumer Credit

A trade association for insurers of Credit Insurance in the areas of Life and Health. (LI,H)

Contest, policy

A court action challenging the validity of a policy.

Contestable Clause

A provision in an insurance policy setting forth the conditions under which or the period of time during which the insurer may contest or void the policy. After that time has lapsed, normally two years, the policy cannot be contested. (LI)

Contestable period

The period of time (usually two years) during which an insurer may challenge the validity of a life insurance policy.

Contingent beneficiary

The party designated to receive life insurance policy proceeds if the primary beneficiary should die before the person whose life is insured dies.

Contingent Owner

The person to succeed as owner of a life insurance policy if the original owner dies.

Contingent payee

The party who will receive any life insurance or annuity proceeds that are still payable at the time of the primary payee’s death.

Continuous-premium whole life insurance

Whole life insurance for which premiums are payable throughout the life of the policy.

Contract

A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.

Contract Law

The portion of civil law that interprets written agreements between parties and resolves disputes between them.

Contract of adhesion

A legally binding agreement that is prepared by one party and that must be accepted or rejected as a whole by the other party, without any bargaining between the parties to the agreement. Insurance contracts are contracts of adhesion.

Contribution Principle

The principle under which divisible surplus is distributed among policies in the same proportion as the policies are considered to have contributed to that surplus.

Contributory

A general term used to describe a plan of employee coverage in which the employee pays at least part of the premium. (LI,H)

Contributory group insurance

Any group insurance plan that calls for the insureds to pay a portion of the cost of the group insurance coverage.

Control Provision

A policy provision found most frequently in juvenile contracts, providing that ownership control is to be exercised for a stated or indefinite duration by a person other than the one whose life is insured. (LI)

Conversion Period

The period of time during which the owner of a term life insurance policy may convert it to another life insurance policy without evidence of insurability.

Conversion privilege

(1) A group life insurance policy provision that allows a group insured whose coverage terminates for specified reasons to convert his group coverage to an individual policy of insurance without presenting evidence of his insurability. (2) The right to change insurance coverage in certain prescribed situations from one type of policy to another without presenting evidence of insurability. For example, the right to change from an individual term insurance policy to a permanent plan of insurance.

Convertible

A provision in a term life insurance policy that allows the policyholder to convert the term policy to another life policy without evidence of insurability.

Convertible term insurance

A type of term insurance that allows the policyowner to change the term insurance policy to a whole life policy without providing evidence of insurability.

Coordination of Benefits (COB)

A group policy provision which helps determine the primary carrier in situations where an insured is covered by more than one policy. This provision prevents an insured from receiving claims overpayments. (LI,H)

Corridor

(1) In the United States, the required difference between a universal life insurance policy’s face amount and the policy’s cash value. This difference is a specified percentage that depends on the insured’s age. If a policy’s cash value exceeds the required percentage of the face amount (that is, intrudes on the corridor), the policy will be considered an investment contract rather than an insurance contract. Also called the TEFRA corridor. (2) In reinsurance, an amount of insurance which is in excess of the ceding company’s retention limit but which is less than the reinsurer’s minimum cession. The ceding company must usually retain this amount of insurance.

Cost Basis

An amount attributed to an asset for income tax purposes; used to determine gain or loss on a life insurance contract to determine the value of a gift.

Cost of Insurance

The amount a policy owner pays to an insurer, minus what he or she gets back from the insurer. This expression is used when determining the true cost of permanent forms of Life Insurance to a policy owner. It considers the fact that premiums are paid in but also that an actual cash value is being built up, which is the portion that the insured will get back from the insurance. (LI)

Cost of Insurance Charge

Another term to describe the charge for the pure insurance protection element of a life insurance contract. It is also known as the Mortality Charge. (LI)

Cost of pure risk

All costs related to pure risk which include, from the perspective of shareholders, retained risk, loss prevention costs and insurance costs.

Cost-of-living adjustment (COLA)

An increase in a pension benefit, disability income benefit or life income benefit to compensate for an increase in the cost of living.

Cost-of-Living Rider

Benefit that can be added to a life insurance policy under which the policy owner can purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.

Coupon Policy

A Life Insurance policy, usually 20-Pay Life or some other limited payment period, with attached coupons that may be cashed in for a specified amount at the time of the payment of each annual premium. (LI)

Coverage

The scope of protection provided under a contract of insurance; any of several risks covered by a policy.

Credit Life Insurance

A group life insurance contract whereby a creditor is protected in the event of death of the insured prior to the indebtedness being paid in full. (LI)

Cross liability clause

Obligates an insurer to protect each insured separately.

Cross Purchase

A form of Business Insurance in which each party to a mutual agreement (usually to buy out a disabled or deceased co-owner) insures each of the other parties. (LI)

Cross Purchase Agreement

Specifies the terms for the surviving partners or shareholders to buy a deceased's share of the business's ownership.

Crude Death (or Mortality) Rate

The ratio of total deaths to total population during any given period. The frequency with which death occurs or is expected to occur among a defined group of people.(LI)

Cumulative Premium

The total amount paid over the course of a specified amount of years.

Current Assumption Whole Life Insurance

Nonparticipating whole life policy in which the cash values are based on the insurer's current mortality, investment, and expense experience. An accumulation account is credited with a current interest rate that changes over time. Also called interest-sensitive whole life insurance.

Current Disbursement

The funding and disbursement of pension benefits as they become due. Also known as "pay-as-you-go." In the long run, this is the most costly method of funding pension plans. (LI)

Current Future Service

The amount of pension payable for each year of future participation in the pension plan. (LI)

Current Service Benefit

The portion of a participant's pension benefit that relates to his credited service in a contemporary period, usually 12 months. (LI)

Current with Reentry Premiums

Non-guaranteed premiums at the time of re-entry; applicable to certain term life insurance policies.

Customer Service Representative (CSR)

Customer service representatives support the work of insurance agents with a variety of tasks that must be done within a company or agency to deliver services to and handle requests from clients.

Cut-through endorsement

An endorsement to an insurance contract stating that reinsurance proceeds will be paid directly to the named payee in the event of an insurer's insolvency.