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Tools & Resources » General Insurance Term Glossary

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The legal relationship between an agent and a principal. See agency relationship. agency agreement An agreement between a principal and an agent that describes the scope of the agent's actual authority. See agent and principal.

agency bank

A mutual savings bank that does not sell its own savings bank life insurance policies to the public but, instead, sells such policies as an agent for an issuing bank. An agency bank only accepts applications, collects premiums, and provides service for its policyowners. See also issuing bank and savings bank life insurance (SBLI).

agency by appointment

An agency relationship that is created when a principal appoints an agent to act on the principal's behalf. See agency relationship. Contrast with agency by ratification.

agency by ratification

An agency relationship that is created when the principal ratifies a purported agent's unauthorized act. See agency relationship. Contrast with agency by appointment.

agency relationship

In law, the relationship between two parties by which one party, the agent, is authorized to perform certain acts on behalf of the other party, the principal.

agency system

A distribution system in which insurance companies use their own commissioned agents to sell and deliver insurance policies. The agency system is the most common system for distributing individual life insurance products and includes the branch office distribution system and the general agency distribution system. Also called the ordinary agency system. See also branch office distribution system, brokerage distribution system, and general agency distribution system.


A party who is authorized by another party, the principal, to act on the principal's behalf in contractual dealings with third parties. See also insurance agent.


Career agents who place business with companies other than their primary companies. Also known as agents of other companies, surplus brokers, or simply brokers.

agent of record

The agent or broker who is recognized by the insurer as the person to whom the commission is to be paid.

agent-owned reinsurance company (AORC)

A captive reinsurance company formed by an insurance company and owned by a group of the company's agents. The company insures all business written by those agents with the captive so that the agents can share in the profits of their own labor.

agent's statement

The portion of the insurance application in which the agent reports anything he or she knows or suspects about the proposed insured that is not reported by the applicant or proposed insured.

age of majority

The age at which a person has the legal capacity to enter into and be bound by a contract.

aggregate funding methods

Pension plan funding methods in which the amount of contributions necessary to fund a plan is determined in the aggregate for all plan participants, rather than separately for each individual plan participant. Contrast with individual funding methods.

aggregate mortality table

A mortality table based on the experience of all insured lives, including mortality rates both during and after the select period. The mortality rates of an aggregate mortality table fall between those of the select and the ultimate mortality tables. See also mortality tables, select mortality table, select period, and ultimate mortality table.

aleatory contract

A contract under which one party provides something of value to another party in exchange for a conditional promise, which is a promise that the other party will perform a stated act if a specified, uncertain event occurs. Insurance contracts are aleatory because the policyowner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs.

alien corporation

In the United States, a company that is incorporated under the laws of another country. Compare to domestic corporation and foreign corporation.

alienation of benefits

In pension planning, the assignment of a plan participant's benefits to an individual other than the participant. In the United States, ERISA generally prohibits the alienation of benefits, although exceptions to this rule include the use of a participant's vested benefit as collateral for a loan. The ERISA prohibition on alienation of benefits prevents creditors from attaching an individual's pension benefits.

all-causes deductible

In health insurance, a deductible which need only be satisfied once during a given period of time. If the period of time is a calendar year, as it usually is, then this type of deductible is known as a calendar year deductible. Contrast with per- cause deductible.

allocated funding

A method of funding a pension plan in which a portion of the total plan funds is allocated to each participant. This type of funding is often achieved through the purchase of annuities or insurance contracts for each participant. Contrast with unallocated funding.

American Council of Life Insurance (ACLI)

In the United States, an organization which collects and disseminates data on life insurance markets.

Annual Statement

An accounting report that insurers must file each year with the appropriate regulatory agency. This report contains detailed accounting and statistical data that regulators use to evaluate a life and health insurance company's solvency and its compliance with insurance laws.


(1) The person designated to receive annuity payments. (2) The person whose lifetime is used as the measuring period to determine how long benefits are payable under a life annuity.


(1) A series of payments made or received at regular intervals. (2) A contract that provides for a series of payments to be made or received at regular intervals. There are many kinds of annuities. For the annuities identified in this glossary, see annuity certain, annuity due, annuity immediate, deferred annuity, deferred life annuity, disabled life annuity, flexible premium annuity, group deferred annuity, immediate annuity, joint and survivor annuity, level premium annuity, life annuity, life annuity with period certain, refund annuity, single premium annuity, single premium deferred annuity (SPDA), straight life annuity, temporary life annuity, temporary life annuity due, variable annuity, whole life annuity, and whole life annuity due.

annuity certain

An annuity that provides a benefit amount payable for a specified period of time regardless of whether the annuitant lives or dies.

annuity due

A series of payments in which the payments are made at the beginning of each interval of time.

annuity immediate

A series of payments in which the payments are made at the end of each interval of time.

annuity mortality table

A tabulation of probabilities of dying at each age. Used by actuaries to calculate premiums and reserves for annuities in which benefits are paid only if a designated person is alive. Annuity mortality tables usually project lower rates of mortality than do mortality tables that are used for life insurance. See also mortality tables.

annuity period

The time between each benefit payment made under an annuity contract.

annuity units

The term used for ownership shares in a variable annuity's separate-account fund after the accumulation period has ended. Annuity units are bought with accumulation units and are used to determine benefit payment amounts. See also accumulation units.


The tendency of people with a greater-than-average likelihood of loss to apply for or continue insurance to a greater extent than do other people. Also called adverse selection or selection against the insurer.
apparent authority

Authority that is not expressly conferred on an agent but that the principal either intentionally or negligently allows a third party to believe the agent possesses. See agent and principal. Compare to express authority and implied authority.


The party applying for an insurance policy.


A form that must be completed by an individual or other party who is seeking insurance coverage. This form provides the insurance company with much of the information it will need to decide whether to accept or reject the risk.

approval type temporary insurance agreement

An agreement issued in conjunction with a conditional premium receipt that provides temporary life insurance coverage as of the date the insurer approves the proposed insured as a standard risk. See also conditional premium receipt and temporary insurance agreements. Compare to insurability type temporary insurance agreement.

assessment method

An early method of funding life insurance under which members of the plan were charged in advance for the amount of money that the administrators estimated would be needed to pay each year's death claims. Also called the pre-death assessment method. See also mutual benefit method.

asset-liability matching

The process of investing, purchasing, selling, and otherwise adjusting an insurance company's asset holdings so that cash is available when it is needed to cover the company's liabilities.


All things of value owned by an individual or organization. Examples of assets include cash, data processing equipment, and investments. Assets are shown on the balance sheet of a life insurance company's Annual Statement as required by law or by insurance department ruling.

asset share

The amount of assets that any block of insurance policies will have accumulated by a given time.

asset share calculation

A computation that simulates the way in which the assets of a block of policies should grow, depending on various assumptions about future interest rates, mortality, morbidity, expenses, lapses, etc.


The party to whom all or certain contractual rights are transferred under an absolute or collateral assignment.


(1) The transfer of ownership rights in a life insurance policy or other type of contract from one party to another. (2) The document that causes the transfer of ownership rights to go into effect. See also absolute assignment and collateral assignment.

assignment of benefits

An authorization directing an insurer to make payment directly to a provider of benefits, such as a physician or dentist, rather than to the insured.


The person or party who transfers certain contractual rights under an absolute or collateral assignment.

association group insurance

Group insurance extended to the members of a trade, professional, or other association.

assumption reinsurance

A reinsurance agreement by which one company permanently transfers full responsibility for a block of policies to another company. After the cession, the ceding company is no longer a party to the insurance agreement.

attained age

The current age of the insured. The age of the insured at the time the insured's policy was issued plus the number of years elapsed since the policy was issued.

attained age conversion

The changing of a life insurance policy from one form of insurance to another (such as from term life insurance to whole life insurance) at a premium rate that is based on the age the insured person has reached at the time the change takes place.

Attending Physician's Statement (APS)

A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim.

automatic dividend option

For a particular life insurance policy, the dividend option that applies in the event the policyowner does not choose an option. See dividend options.

automatic nonforfeiture option

For a particular life insurance policy, a specified nonforfeiture benefit that becomes effective automatically when a renewal premium is not paid by the end of the grace period and the policyowner has not elected another nonforfeiture option. See also nonforfeiture options.

automatic premium loan (APL)

A life insurance nonforfeiture option that allows the insurer to pay overdue premiums on a policy by establishing a loan against the policy's cash value. See also nonforfeiture options.

automatic reinsurance treaty

A reinsurance agreement in which the reinsurer agrees, for a stipulated type of risk, to accept each risk or a portion of each risk submitted by the ceding company, up to a certain limit, provided the ceding company insures up to its usual retention limit. In this agreement, the ceding company assumes full underwriting responsibility for all cases reinsured.

average indexed monthly earnings

In the United States, the figure on which social security disability, retirement and other benefits are based. The figure is an average of the monthly earnings on which a worker has paid social security tax. The figure is indexed, that is, adjusted to compensate for inflation.

aviation exclusion

A life insurance contract provision which specifies that the death benefit is not payable if the insured dies as a result of certain aviation activities.

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Making the effective date of an insurance policy earlier than the date of the application so that the premium rate will be lower. State law usually limits back- dating to not more than six months. Also called dating back.

back-loaded policy

A life insurance policy (usually a universal life insurance policy) in which most of the expense charges occur when the policyowner surrenders the policy or makes cash withdrawals from the policy. Such charges are usually highest in the early policy years and are often eliminated at the end of a certain number of years. See also front-loaded policy and universal life insurance.


The practice of providing a higher accrual of pension benefits during a participant's later years of employment. The practice is designed to encourage and reward long service.

band grading

The grouping of life insurance policies according to death benefit amounts for the purpose of calculating loading.


basic death benefit

The death benefit according to the terms of the original, basic contract of a life insurance policy. The basic death benefit does not include the benefit for any supplementary riders, such as an accidental death benefit (ADB) rider. For policies whose death benefit remains constant, the basic death benefit is equivalent to the face amount. Compare to death benefit and policy proceeds.

basic mortality table

A mortality table without a safety margin. Also called a basic experience table. See also mortality table and safety margin.

basic services

Under dental insurance, dental services, such as fillings, periodontics, and oral surgery, which are often covered at 80 percent of their reasonable and customary charges.

basket clause

(1) From an investment point of view, a provision that allows insurance companies to invest a small percentage of their assets generally without regard to statutory restrictions. (2) From an accounting point of view, a clause which permits life and health insurers to hold a specified amount of their assets as nonauthorized assets, which are not restricted in the same way as authorized assets.


The person or other party designated to receive life insurance policy proceeds. See also contingent beneficiary, irrevocable beneficiary, primary beneficiary, and revocable beneficiary.


The amount of money paid when an insurance claim is approved. Also called the policy benefit.

benefit of survivorship

Describes the fact that annuity payments will be made as long as the designated recipient is alive at the time the payment is due. This concept is used in the calculation of amounts due under life insurance settlement option.

benefit schedule

Under a group insurance plan, a table or schedule which specifies the amount of coverage provided for each class of insured. Insureds are often classified with reference either to earnings or to rank or position. Also known as schedule of benefits.

best-earnings plan

A pension plan which specifies that each participant's benefit will be calculated according to the final-average formula.

binding premium receipt

A type of initial premium receipt that makes insurance coverage effective immediately but only until the insurance company either rejects the application or approves it and issues a policy. Compare to conditional premium receipt.

birthday rule

A rule included in some coordination of benefits provisions that specifies the manner in which benefits for dependent children are to be coordinated between two insurance plans. According to the birthday rule, benefits for dependent children will be paid by the plan of the parent whose birthday falls earlier in the year.

blended rates

Group mortality rates that are based partially on a group's own experience and partially on manual rates. Blended rates are used to determine the appropriate group insurance premium rates for intermediate-size groups. See also experience rating and manual rates.

Blue Cross plan

A hospital expense insurance plan offered by a regionally-operated health care provider affiliated with a large national nonprofit health care organization. This plan generally provides benefits on a "service-type" basis.

Blue Shield plan

A physician expense insurance plan offered by a regionally-operated health care provider affiliated with a large national nonprofit health care organization. This plan generally provides benefits on a "service-type" basis.

branch manager

The individual in charge of a field office of an insurance company that uses the branch office distribution system. Also called a general manager. See also branch office distribution system.

branch office distribution system

A common system for selling individual life insurance. Under this system, the soliciting agents who work out of a branch office are under contract to the insurance company, not to the branch manager, and the agents receive commissions directly from the insurance company. The branch office manager, supervisors, and clerical personnel in the field office are employees of the insurance company, and these employees are subject to the same types of controls normally exercised by an employer. See also agency system, branch manager, and general agency distribution system.

break in service

The length of time between the date an employee leaves a firm and the date the employee resumes working for that firm. For pension and employee benefit plan purposes in the United States, a plan participant cannot be deprived of benefits which accumulate before a break in service unless the break is longer than (1) five years or (2) the amount of time that the participant has been employed when the break commences, whichever is greater.


(1) An insurance salesperson agent who sells insurance products for more than one insurance company. (2) For a career agent, to submit insurance applications to companies other than the agent's own company.

brokerage distribution system

A distribution system that relies on commissioned agents, called brokers, who sell the products of more than one insurance company.

brokerage manager

A salaried insurance company employee or an independent agent whose responsibility is to appoint brokers on behalf of the company and to encourage brokers to sell the products of a particular insurance company.

brokerage shop

An agency operated by an independent general agent who is under contract to a number of insurance companies. Also known as a brokerage general agency.


A firm that provides information or advice to its customers regarding the sale and/or purchase of securities and that serves as a financial intermediary between buyers and sellers by manufacturing or acquiring securities in order to market them to its customers.

bundled insurance product

An insurance product in which the mortality, investment, and expense factors used to calculate premium rates and cash values are not identified separately in the policy. Traditional whole life insurance is an example of a bundled insurance product. See also unbundled insurance product.

business-continuation insurance

A type of business insurance designed to provide funds so the remaining partners in a business, or the remaining stockholders in a closely-held corporation, can buy the business interest of a deceased or disabled partner or stockholder. See also partnership insurance and stock repurchase insurance.

business insurance

Insurance that is intended to serve the insurance needs of a business rather than the needs of an individual.

Buyer's Guide

In the United States, a publication that many states require insurance companies to give to an applicant for life insurance. The Buyer's Guide helps the applicant make an informed choice among policies.

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cafeteria plan

An employee benefit plan which gives each employee several choices as to the types and/or amounts of group benefits. Also known as a flexible benefit plan.

cancellable policy

An individual health insurance policy that can be terminated at any time by the insurer. See also conditionally renewable policy, guaranteed renewable policy, noncancellable and guaranteed renewable policy, noncancellable policy, and optionally renewable policy.


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.

capitation basis

A compensation plan used in some health maintenance organizations (HMOs) in which a physician is paid a flat amount per year per subscriber who has elected to use that physician. For that amount, the physician must treat the subscriber as often as necessary during that year. See also fee schedule basis.

captive agents

See exclusive agents.

captive insurance company

An insurance company, formed and controlled by a separate company, whose purpose is to provide insurance to the controlling company. Companies which form captive insurance companies include all types of companies which extend credit to customers, including banks and retailers. See also agent-owned reinsurance company (AORC).

career agent

A full-time commissioned salesperson who works out of an insurance company's field office, holds an agent contract with that company, and sends all, or almost all, of his or her business to that company. A career agent may occasionally broker business with other companies.

career average (career earnings) benefit formula

A type of defined benefit formula in which the retirement benefit amount is derived on the basis of a participant's compensation during the entire period of participation in the plan. See also defined benefit formula. Contrast with final average benefit formula.

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 cost-containment program designed to identify alternate, less costly methods of treatment for seriously ill patients without sacrificing the quality of care a patient receives. Also known as catastrophic claim management, large claim management, or medical case management.

cash-balance pension plan

A type of defined benefit plan in which each participant has an account which is credited with amounts reflecting the employer's contributions and amounts reflecting investment interest. The balance in the account indicates the participant's accrued benefit. Upon retirement or withdrawal, the participant may receive the full account balance in a lump sum, provided that the benefits are fully vested, or may use the account balance to purchase an annuity.

cash payment option

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

cash premium accounting system

A premium accounting system used for industrial insurance. Under this system, the agent informs the home office of the amount collected on each policy. The home office then updates the policy records to reflect these collections and prepares new route collection records. Contrast with advance and arrears system.

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. Contrast with the installment refund option.

cash surrender value

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.

cash surrender value option

A life insurance policy nonforfeiture option which specifies that a policyowner who discontinues premium payments can elect to surrender the policy and receive the policy's cash surrender value.

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. Compare to cash surrender value. Also called inside build-up and policyowner's equity.

causal relation requirements

Proof required by statute in Kansas, Missouri, Rhode Island, and Puerto Rico to show that the facts misrepresented in an application for insurance were related to the loss insured against.

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.

certain payment

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

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 authority

(1) A document created by an insurer detailing the authority granted to an agent or group of agents to act on behalf of the insurer. (2) In the United States, a certificate issued by a state's insurance department authorizing an insurer to issue certain types of insurance within the state.

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 given to each person insured by a group insurance plan. This document shows the type and amount of coverage to which the group member is entitled and the beneficiary of the coverage. The certificate may also contain a summary of the contract terms as they affect individual group members.


(1) In reinsurance, the act of ceding. (2) In reinsurance, a parcel or unit of insurance that a company cedes to a reinsurer.

change of condition provision

An insurance provision stipulating that, for a policy to become effective, all conditions described in the application must still be true at the time of delivery.

change of occupation provision

An individual health insurance policy provision that grants the insurer the right to adjust a policy's premium rate or benefits when the insured changes jobs or careers.


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

claim administration department

The department in a life and health insurance company responsible for processing claims. In this department, claim examiners review claims presented by policyowners or beneficiaries, verify the validity of claims, and authorize the payment of benefits to the proper person.


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

claim examiner

An employee of an insurance company whose responsibilities include investigating claims, approving the claims that are valid, and denying those that are invalid or fraudulent.

claim frequency rate

In health insurance calculations, the claim frequency rate is the expected percentage of insured people who will file claims and the number of claims they will file during a given period. The claim frequency rate is used to calculate average claim costs, which are used to calculate premium rates.

claim investigation

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

claim reserve

A claim department's estimate of the amount of money needed to pay a claim. The estimate is made with the help of information that the claim department gathers in the course of handling the claim. This information may involve, for example, the extent to which the claim is covered by the policy, the effect of previously paid claims on the amount of coverage available to pay a current claim, and the effect of any applicable reinsurance coverage on the claim.

class beneficiary designation

A beneficiary designation that names several people as a group—for example, "children of the insured"—rather than naming each person individually.

clean-up fund

A lump-sum life insurance death benefit designed to pay the insured's outstanding debts and final expenses.

closed contract

An insurance contract in which the terms of the insurance contract and the application constitute the entire agreement between the policyowner and the insurer. Commercial insurance companies use closed contracts. See also open contract.


The process of securing a purchase commitment from a prospect by requesting and obtaining the prospect's agreement to submit an application for the coverage recommended in a sales proposal.


(1) In a health insurance policy, the percentage of all eligible medical expenses, in excess of the deductible, incurred as a result of a sickness or injury, that an insured is required to pay. Also called percentage participation. (2) A type of reinsurance plan in which the ceding company pays the reinsurer part of the premium paid by the insured, minus a proportionate share of the commission and premium taxes associated with the policy that is being reinsured and a portion of the ceding company's general overhead expenses. In return, the reinsurer agrees to pay the ceding company a proportionate part of the death benefit when a claim is filed and to contribute to all other policy benefits, including dividends, on a scale determined by the ceding company. In addition, the reinsurer agrees to accumulate the required reserves for the reinsured portion of the policy.

coinsurance provision

A stipulation found in most health insurance policies that requires an insured to pay a stated percentage, in excess of the deductible, of all eligible medical expenses.


See cost-of-living adjustment (COLA).

collateral assignment

A transfer of some ownership rights in a contract from one party to another, generally for a temporary period. Insurance policies are often assigned as collateral for a loan, in which case all transferred rights revert to the assignor when the loan is repaid. See also assignment.

combination company

A life and health insurance company that sells both industrial and ordinary insurance products.

combination clause

A clause in a disability income contract that specifies a point at which the definition of total disability will no longer be based on an insured's inability to perform his or her "own occupation" but on the insured's inability to perform "any occupation."

combination dental plan

A dental plan which contains features of both scheduled and nonscheduled plans. Typically, combination plans cover preventive and diagnostic procedures on a nonscheduled basis and other services on a scheduled basis. See also nonscheduled dental plan and scheduled dental plan.

combination plan

A pension plan which employs an approach to funding wherein part of the funding is allocated and part is unallocated. The allocated part of the employer's contribution is used to purchase annuities or life insurance contracts with cash values. The unallocated part is placed in a side fund, also called a conversion fund. See also allocated funding and unallocated funding.


The amount of money paid to an insurance agent for selling an insurance policy. A commission is almost always calculated as a percentage of the premium.

Commissioners Method

A method prescribed in the United States for calculating modified net premiums and reserves for life insurance policies.

common accident provision

(1) A provision of many medical expense insurance contracts which specifies that, if two or more members of the same family are injured in the same accident, their combined medical expenses will only be subject to one deductible. (2) A provision found in many voluntary group accidental death and dismemberment plans which specifies that the amount payable by the insurance company is limited to a stipulated maximum for all employees killed or injured in a single accident.

common disaster clause

A life insurance policy provision which states that the primary beneficiary must survive the insured by a specified period, such as 60 or 90 days, in order to receive the policy proceeds. Otherwise, the policy proceeds will be paid as though the primary beneficiary had died before the insured.


Applying the same premium rate structure to certain group insurance subscribers, regardless of their past or potential loss experience.

company retention method

A method of comparing the costs of various life insurance policies wherein the present value of premiums, cash values, and dividends is calculated by weighting each item each year by the probability that it will be paid. See also cost comparison methods.

comprehensive major medical insurance

A form of health insurance coverage that combines the features and benefits of a hospital-surgical expense policy and the features and benefits of a major medical policy.

conditionally renewable policy

A health insurance policy that grants an insurer the right to refuse to renew the policy for reasons specified in the policy at the end of a premium payment period. See also cancellable policy, guaranteed renewable policy, noncancellable and guaranteed renewable policy, noncancellable policy, and optionally renewable policy.

conditional premium receipt

A type of premium receipt given when the applicant pays the initial premium and under which life insurance will become effective before a policy is issued only if the proposed insured is found to be insurable. Also called a conditional receipt. Compare to binding premium receipt. See also approval type temporary insurance agreement and insurability type temporary insurance agreement.

confirmation certificate

A certificate issued to the beneficiary of a life insurance policy that outlines the amount of life insurance proceeds in a retained asset account, the account number, and the current interest rate.


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

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

In the United States, a statute which requires that employers sponsoring group health plans offer continuation of coverage under the group plan to employees and their spouses and dependent children who have lost coverage because of the occurrence of a "qualifying event." Qualifying events include reduction in work hours, many types of termination of employment, death, and divorce.

constructive delivery

Legally equivalent to physical delivery of a policy. Constructive delivery occurs (a) when an insurer parts with control of the policy with the intention that the insurer will be unconditionally bound by the policy as a completed instrument or (b) when the policy is physically delivered to an agent of the applicant.

consumer report

As defined by the Fair Credit Reporting Act, a consumer reporting agency's communication of any information pertaining to an individual consumer's creditworthiness, credit standing, credit capacity, general reputation, or personal characteristics.

consumer reporting agency

Any person or organization that regularly prepares consumer reports and furnishes them, either for profit or on a cooperative, nonprofit basis, to other persons or organizations. Also called a credit reporting agency. See also Fair Credit Reporting Act (FCRA).

contestable period

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


Events that are possible but that may or may not happen. Insurers base their premium rates and their willingness to accept risks partly on the probability that certain contingencies will or will not occur.

contingency reserve

A voluntary reserve established by an insurance company to help pay any unusual and unexpectedly large claim amounts. See also special surplus funds.

contingent beneficiary

The party designated to receive life insurance policy proceeds if the primary beneficiary should die before the person whose life is insured. Also called the secondary beneficiary or the successor beneficiary.

contingent payee

The party who will receive any life insurance policy proceeds that are still payable under a settlement option at the time of the primary payee's death. Unlike the contingent beneficiary, the contingent payee's rights do not end when the insured dies. Also called the successor payee.

contingent payment

A payment that will be made only if some predesignated condition is met, such as the recipient being alive.

continuance tables

Tables containing morbidity statistics that indicate the distribution of claims according to the duration of the illness or amount of expense involved in the claims.

continuous-premium whole life insurance

A type of whole life insurance in which premiums are payable until the death of the insured. Also called straight life insurance.

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.

contract of indemnity

A type of contract in which the amount of the benefit to be paid is based on the actual amount of financial loss as determined at the time of loss. For example, many hospital expense insurance contracts are contracts of indemnity. See also valued contract.

contributed surplus

On a Canadian life insurance company's balance sheet, the amount in excess of par value paid in by stockholders minus the amount of dividends paid to stockholders.

contribution limit

The maximum annual addition permitted by law to be made to a participant's account in a defined contribution pension plan. The annual contribution includes employer contributions, employee contributions, and forfeitures that have been reallocated from other participants' accounts. The limit is subject to legislative change and is generally indexed to inflation so that it increases as price levels increase. In the United States, the contribution limit is set under Section 415 of the Internal Revenue Code. See also maximum benefit and Section 415 limits.

contribution to surplus

In mutual insurance companies, the income that results when an insurance company makes more money than is needed to pay for the cost of providing insurance.

contributory group insurance

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

contributory plan

Any pension or employee benefit plan in which plan participants can or must make contributions to the plan out of their own funds. Contrast with noncontributory plan.

convention blank

The standardized Annual Statement form that all United States insurers must complete and submit yearly to their state's insurance regulators. See Annual Statement.

conversion fund

The fund in which unallocated employer contributions to a combination plan are accumulated. Also called a side fund.

conversion privilege

(1) The right of a person who is covered by a group insurance policy to convert his or her group coverage to coverage under an individual insurance policy. Such a conversion can be made when a person leaves the group, benefits are downgraded or terminated for a specific class, or when the group master policy is ended. (2) The right to change insurance coverage in certain prescribed situations from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.

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. The premium rate is normally based on the age of the insured at the time of the conversion.

coordination of benefits (COB) clause

A provision in a group health insurance policy specifying that benefits will not be paid for amounts reimbursed by other group health insurers. The purpose of a coordination of benefits provision is to assure that an insured's benefits from all sources do not exceed 100 percent of allowable medical expenses. See also overinsurance provision.

cost comparison methods

The different formulas that insurance companies use to show prospective policyowners the cost of different insurance policies. See also company retention method, interest-adjusted net cost method, and rate of return method.

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.

credibility percentage

The amount of credit or weight given to a group's actual claims experience in determining a projection of future claims or in the calculation of a dividend. Sometimes called the credibility factor. See also experience rating and experience refund.

credit life insurance

A type of decreasing term insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid.


In the numerical rating system, credits represent underwriting factors that have a favorable effect on an individual's mortality rating. Credits are assigned negative values. See also debits and numerical rating system.


The process of selling both property/casualty and life and health insurance, as well as other financial services products, to the same customer.

current review

A component of a utilization review program that monitors an insured's care while the insured is hospitalized and encourages the dismissal of an insured from the hospital as soon as the insured's medical condition no longer warrants continued in-patient care.

current settlement option rates

Settlement option rates that reflect the interest rates currently earned by the insurer.


An event or amendment to a pension plan that significantly reduces plan benefits or employer contributions. Types of curtailments include a reduction of the expected years of future service of present employees, and the elimination of the accrual of defined benefits for some or all of the future services of a significant number of employees.

customer service department

The department in a life and health insurance company that is charged with providing assistance to the company's policyowners, agents, and beneficiaries. Customer service specialists answer policyowners' requests for information, help them interpret policy language, answer questions about policy coverage, and make changes requested by the policyowner, such as changing the policyowner's address, beneficiary designation, and mode of premium payment. The customer service department may also send premium notices to customers, collect premium payments, and calculate and process policy loans, nonforfeiture options, dividends, and surrenders. In some companies, the customer service department also processes commission payments for company agents. Also called the client service department, the policy administration department, the policyowner service department, and the service and claim department.

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