Secondary Market – The secondary market is populated by buyers willing to pay what they determine to be fair market value.
Section 1035 Exchange- This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.
Section 7702- Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.
Separate Account- A separate account is an investment option that is maintained separately from an insurer’s general account. Investment risk associated with separate-account investments is born by the contract owner.
Solvency – Having sufficient assets–capital, surplus, reserves–and being able to satisfy financial requirements–investments, annual reports, examinations–to be eligible to transact insurance business and meet liabilities.
Standard Auto – Auto insurance for average drivers with relatively few accidents during lifetime.
State of Domicile – The state in which the company is incorporated or chartered. The company also is licensed (admitted) under the state’s insurance statutes for those lines of business for which it qualifies.
Statutory Reserve – A reserve, either specific or general, required by law.
Stock Insurance Company – An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.
Stop Loss – Any provision in a policy designed to cut off an insurer’s losses at a given point.
Subaccount Charge- The fee to manage a subaccount, which is an investment option in variable products that is separate from the general account.
Subrogation -The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.
Successive Periods – In hospital income protection, when confinements in a hospital are due to the same or related causes and are separated by less than a contractually stipulated period of time, they are considered part of the same period of confinement.
Surplus – The amount by which assets exceed liabilities.
Surrender Charge- Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
Surrender Period – A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.
Term Life Insurance – Life insurance that provides protection for a specified period of time. Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70. The policy doesn’t build up any of the nonforfeiture values associated with whole life policies.
Tort – A private wrong, independent of contract and committed against an individual, which gives rise to a legal liability and is adjudicated in a civil court. A tort can be either intentional or unintentional, and liability insurance is mainly purchased to cover unintentional torts.
Total Admitted Assets – This item is the sum of all admitted assets, and are valued in accordance with state laws and regulations, as reported by the company in its financial statements filed with state insurance regulatory authorities. This item is reported net as to encumbrances on real estate (the amount of any encumbrances on real estate is deducted from the value of the real estate) and net as to amounts recoverable from reinsurers (which are deducted from the corresponding liabilities for unpaid losses and unearned premiums).
Total Annual Loan Cost- The projected annual average cost of a reverse mortgage including all itemized costs.
Total Loss – A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
Umbrella Policy – Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.
Unaffiliated Investments – These investments represent total unaffiliated investments as reported in the exhibit of admitted assets. It is cash, bonds, stocks, mortgages, real estate and accrued interest, excluding investment in affiliates and real estate properties occupied by the company.
Underwriter – The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.
Underwriting – The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.
Underwriting Expenses Incurred – Expenses, including net commissions, salaries and advertising costs, which are attributable to the production of net premiums written.
Underwriting Expense Ratio – This represents the percentage of a company’s net premiums written that went toward underwriting expenses, such as commissions to agents and brokers, state and municipal taxes, salaries, employee benefits and other operating costs. The ratio is computed by dividing underwriting expenses by net premiums written. The ratio is computed by dividing underwriting expenses by net premiums written. A company with an underwriting expense ratio of 31.3% is spending more than 31 cents of every dollar of net premiums written to pay underwriting costs. It should be noted that different lines of business have intrinsically differing expense ratios. For example, boiler and machinery insurance, which requires a corps of skilled inspectors, is a high expense ratio line. On the other hand, expense ratios are usually low on group health insurance.
Underwriting Guide – Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter. Alsocalled an underwriting manual, underwriting guidelines, or manual of underwriting policy.
Unearned Premiums – That part of the premium applicable to the unexpired part of the policy period.
Uninsured Motorist Coverage- Endorsement to a personal automobile policy that covers an insured collision with a driver who does not have liability insurance.
Universal Life Insurance – A combination flexible premium, adjustable life insurance policy.
Usual, Customary and Reasonable Fees- An amount customarily charged for or covered for similar services and supplies which are medically necessary, recommended by a doctor or required for treatment.
Utilization – How much a covered group uses a particular health plan or program.
Valuation – A calculation of the policy reserve in life insurance. Also, a mathematical analysis of the financial condition of a pension plan.
Valuation Reserve – A reserve against the contingency that the valuation of assets, particularly investments, might be higher than what can be actually realized or that a liability may turn out to be greater than the valuation placed on it.
Variable Annuitization- The act of converting a variable annuity from the accumulation phase to the payout phase.
Variable Life Insurance – A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.
Variable Universal Life Insurance – A combination of the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder.
Viatical Settlement Provider – Someone who serves as a sales agent, but does not actually purchase policies.
Viator – The terminally ill person who sells his or her life insurance policy.
Voluntary Reserve – An allocation of surplus not required by law. Insurers often accumulate such reserves to strengthen their financial structure.
Waiting Period – See “elimination period.”
Waiver of Premium- A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.
Whole Life Insurance – Life insurance which might be kept in force for a person’s whole life and which pays a benefit upon the person’s death, whenever that might be.
Yield on Invested Assets (IRIS) – Annual net investment income after expenses, divided by the mean of cash and net invested assets. This ratio measures the average return on a company’s invested assets. This ratio is before capital gains/losses and income taxes.
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