Glossary of Insurance Related Terms

P.S. 58 Charges

The cost of one-year term insurance used in the calculation of economic benefit for a stockholder under a split dollar plan. (LI)

Paid Business

Insurance for which the application has been signed, the medical examination completed, and the settlement for the premium tendered. (LI,H)

Paid-up additional insurance dividend option

The dividend option under which the insurer uses each policy dividend to purchase paid-up additional insurance on the insured’s life.

Paid-up additions

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

Paid-Up Additions (or "Adds")

An option whereby the insured can leave dividends with the insurer, and each dividend is used to buy a single premium life insurance policy for whatever amount it will purchase. Also called Paid-Up Additions. (LI)

Paid-up Insurance

Insurance on which all required premiums have been paid. The term is frequently used to mean the reduced paid-up insurance available as a non-forfeiture option.

Paid-up policy

An insurance policy that requires no further premium payments.

Paramedical Examination

Physical examination of an applicant by a trained person other than a physician.

Paramedical report

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

Partial disability

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

Partial disability benefit

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

Participant

An employee or former employee who is eligible to receive benefits from an employee benefit plan or whose beneficiaries may be eligible to receive benefits from the plan. (LI,H,PE)

Participating Insurance

Insurance issued by an insurance company providing participation in dividend distribution.

Participating policy

An insurance policy under which the policyowner shares in the insurance company’s divisible surplus by receiving policy dividends.

Partnership Insurance

Life or Health Insurance sold to a partnership, usually for guaranteeing business continuity in case of the death or disability of one of the partners. For instance, two partners might buy Life Insurance on each other so that in the event of one partner's death, the other can use the insurance proceeds to purchase his share of the business from his heirs. (LI,H)

Past Service Benefit

A term used in Pension or Retirement Insurance policies to refer to credit given an employee for the amount of time the person was employed prior to the effective date of the retirement plan. Example: An insured starts a pension plan on January 1, 1980. It states that all eligible employees will be given credit for their length of service or employment prior to that date. (LI)

Pay

An abbreviation for payment as in "20-Pay Life policy." (LI)

Pay-As-You-Go

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)

Payee

(1) The person or party who is to receive the proceeds of a life insurance policy in accordance with the terms of a settlement agreement. (2) The person who receives the periodic benefit payments during an annuity’s payout period.

Payor

The person making premium payments on a policy.

Payor Benefit

A rider or provision often found in juvenile policies under which premiums are waived if the person paying the premium, usually one of the parents, becomes disabled or dies while the child is still a minor. (LI)

Pegging

Pegging is a practical smoothing device used to arbitrarily increase the actual dividend (s) paid on a new lower dividend scale to eliminate a temporary reduction in the actual dividends paid from year to year on a policy. Usually only base policy dividends are pegged; dividends on riders and Paid Up Additions (PUA) are not. See: Substitution. Pegging compares (normally before any adjustments for loans) the following: (a) The smaller of the dividend amount actually paid in the prior policy year and the prior year's dividend schedule payable in the current policy year, and (b) The current policy year's formula payment under the current year's schedule. This distribution does not follow the contribution method. It's done infrequently to enhance persistency.

Pension

A lifetime monthly income paid to a person who has retired.

Pension Benefit Guaranty Corporation (PBGC)

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

Per Capita

Literally "by heads." Distribution among survivors by persons on a share-and-share-alike basis. The term is often used in beneficiary designations. Contrast with Per Stirpes. (LI)

Per capita beneficiary designation

A class beneficiary designation under which life insurance policy proceeds are shared only by those class members who survive the insured.

Per Stirpes

Literally "by branches." Distribution of property between or among two or more beneficiaries with the provision that if one dies before the insured, his heirs shall have his full share distributed among them. Contrast with Per Capita. (LI)

Per stirpes beneficiary designation

A class beneficiary designation under which the descendants of a deceased class member receive the deceased class member’s share of the life insurance policy proceeds.

Peril

The cause of a loss insured against in a policy.

Period certain

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

Permanent (Life Insurance)

Any form of life insurance except term; generally insurance that builds up a cash value, such as whole life.

Permanent and total disability

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

Permanent life insurance

Life insurance that provides coverage throughout the insured’s lifetime and also provides a savings element that builds a cash value.

Persistency

The degree to which policies stay in force through the continued payment of renewal premiums.

Persistency Bonus (Policy Owner's)

An enhancement to the policy's benefits, usually in the form of additional interest credits and/or reduced charges, for policies that remain in force for a certain period. The bonus may or may not be guaranteed in the contract.

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.

Personal Representative

A person appointed through the will of a deceased or by a court to settle the estate of one who dies.

Policy

A written document that contains the terms of the contractual agreement between an insurance company and policyowner.

Policy anniversary

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

Policy Dividend

A refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience.

Policy Fee

Fee added to the periodic premium payments to cover undefined policy costs.

Policy fee system

A pricing system for unbundled products whereby the customer pays a flat amount—called the policy fee—plus a specific rate per $1,000 face amount.

Policy Holder

The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

Policy Holders' Surplus

Sum left after liabilities are deducted from assets. Sums such as paid-in capital and special voluntary reserves are also included in this term. This surplus is an additional financial protection to policy holders in the event a company suffers unexpected or catastrophic losses. The financial base that permits a company to sell insurance.

Policy limit

The maximum amount a policy will pay, either overall or under a particular coverage.

Policy loan

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

Policy Owner

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

Policy proceeds

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

Policy provisions

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

Policy Reserve

A reserve which exists because of the concept that each policy has a pro rata share of the total reserve established for all policies. (LI)

Policy Reserves

The measure of the funds that a life insurance company holds specifically for fulfillment of its policy obligations. Reserves are required by law to be so calculated that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims.

Policy Term

That period for which an insurance policy provides coverage.

Policy Value

A universal life insurance policy's equivalent of a cash value. The policy value is built by the accumulation of premiums plus interest less charges for expenses and mortality costs and other risk charges. In variable policies, this accumulation depends on the performance of the underlying assets and not on an interest rate set by the insurance company.

Policy year

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

Pool

A method of distributing insurance risk, whereby, the individual participants share overall risk with the other participants.

Pooling arrangement

An agreement to divide any losses that might occur equally among two or more people, typically with each paying the average loss.

Postdated Check Plan

A premium-paying arrangement under which the policy owner gives the insured a series of checks, each dated ahead of the date on which premiums fall due for a year or more. The insurer then presents each check on its date. (LI)

Power of Attorney (POA)

Authority given to a person to act in one's behalf on most required activities.

Preauthorization Check Plan

A premium-paying arrangement by which the policy owner authorizes the insurer to draft money from his or her bank account for the payments. This is usually done on a monthly basis. (LI)

Preauthorized check (PAC) system

An automatic premium payment technique whereby the policyowner authorizes the insurer to generate a check against the policyowner’s bank account to pay each renewal premium.

Preexisting Condition

A physical and/or mental condition of an insured which first manifested itself prior to the issuance of his/her policy or which existed prior to issuance and for which treatment was received.

Preference beneficiary clause

A life insurance policy provision which states that if no beneficiary is named, the insurer will pay the policy proceeds to the first living individual listed in the policy. The provision might list the “spouse of the insured,” followed by the “children of the insured,” etc.

Preferred and Preferred Plus

The best premium rate classes for unimpaired, non-smoking applicants that are in better than average health.

Preferred Provider Organization (PPO)

An organization of hospitals and physicans who provide, for a set fee, services to insurance company clients. These providers are listed as preferred and the insured may select from any number of hospitals and physicians without being limited as with an HMO. Coverage is 100%, with a minimal copayment for each office visit or hospital stay. Contrast with Health Maintenance Organization. (LI,H)

Preferred risk class

The risk category that is composed of proposed insureds who present a significantly less-than-average likelihood of loss.

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.

Preliminary Term

A reserve system in Life Insurance under which the entire first-year premium is used for clean and acquisition costs. The effect is to reduce the first year's premium, making it more attractive to the prospective buyer. (LI)

Premium

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

Premium deposits

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

Premium Discount

Periodic Payment discount given by a company.

Premium financing

A policy holder contracts with a lender to pay the insurance premium on his/her behalf. The policy holder agrees to repay the lender for the cost of the premium, plus interest and fees.

Premium Load

A Universal Life term, also called a "front-end load," meaning the percentage of premium deducted from each premium payment to help cover expenses. Some policies provide for a "no load" feature. (LI)

Premium Loan

A policy loan made for the purpose of paying premiums.

Premium receipt

A receipt that the sales agent gives to an applicant for insurance in exchange for the initial premium payment and that provides a proposed insured with temporary insurance coverage while the application is being underwritten.

Premium Receipt Book

The policy owner's record of premium paid, usually used for a Weekly Payment or Monthly Debit Ordinary policy. (LI)

Premium Refund

A special provision which allows a beneficiary to collect the face amount of a policy plus all the premiums that have been paid. (LI)

Premium Tax

A tax, imposed by each state, on the premium income of insurers doing business in the state.

Present value

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

Presumptive disability

A condition that, if present, automatically causes an insured to be considered totally disabled and entitles the insured to receive a disability policy’s full income benefit. Examples of presumptive disabilities are total and permanent blindness or loss of two limbs.

Pricing Elements

The elements used in pricing a policy, principally investment earnings, mortality and expenses. If actual experience is better than the assumptions made in determining the policy guarantees, the difference after reflecting surplus needs is available for distribution to policy holders through the company's dividend scale or other non-guaranteed pricing structure.

Primary beneficiary

The party or parties who have first rights to receive the benefits of a life insurance policy following the death of the insured. Also called first beneficiary.

Primary Insurance

Insurance that pays compensation for a loss ahead of any other insurance coverages the policy holder may have.

Principal

One for whom an agent acts, especially as to contractual dealings with third persons.

Principal Sum

The amount payable in one sum in the event of accidental death and in, some cases, accidental dismemberment. When a contract provides benefits for both accidental death and accidental dismemberment, each dismemberment benefit is an amount equal to the principal sum or some fraction thereof.

Privacy

(1) The right to be let alone; (2) in insurance contexts, the right to fair personal information practices. Probate: The court-supervised process of validating or establishing a distribution for assets of a deceased including the payment of outstanding obligations.

Probate

The judicial process of proving the validity of a will under state law. The goal of these laws is to ensure that the decedent's estate is settled correctly and that those entitled to the decedent's property both under the will and under state law receive that property.

Proceeds

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

Producer

A term applied to an agent, solicitor or other person who sells insurance.

Profit Commission

A commission payable on the profit generated under an insurance or reinsurance contract as an encouragement to maintain the flow of profitable business.

Projected Rates

Policy payment that is currently being charged by the company after the guarantee period.

Proportional reinsurance

A type of reinsurance where the ceding insurer cedes to its reinsurer a predetermined proportion of the liability and premium of those policies subject to the reinsurance agreement.

Proposed Insured

The person named in a life insurance application as the person whose life is to be covered by the insurance, if the application is approved.

Prospective Reserve

A Life or Health Insurance reserve which it is estimated will be sufficient to pay future claims when probable future premiums, interest, and survivorship benefits are added to it. (LI,H)

Prospectus

A form which is often part of the proposal form, giving details of the cover available with particulars of extra benefits and rebates.

Provision

A statement or clause, found in an insurance policy, to establish some term of the contract.

Proximate cause

The active efficient cause which sets in motion a chain of events which brings about a result without the intervention of any new cause working actively from a fresh or independent source. Proximate cause is not necessarily the closest in time to the result.

Pure Endowment

An endowment payable if the designated person is alive at the end of the endowment period but not payable if the person is not alive at that time. This type of policy is not often used today. (LI)

Pure Mortality Cost

The number of deaths in a group of people, usually expressed as deaths per thousand. It can be the rate for the total population, called the crude mortality rate, or it can be refined by factors such as age groupings or causes of deaths. Same as Death Rate