Glossary

A

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

1035 exchange. See Section 1035 Exchange.

1099. See IRS Form 1099.

20 percent rule. See percentage-of-income rule.

401(k) plan. In the United States, a special type of profit-sharing plan, savings plan, or retirement plan that is established by employers for the benefit of employees and that allows both employers and employees to make specified contributions to the plan on a tax-deferred basis.

403(b) plan. In the United States, an arrangement that allows not-for-profit employers and their employees to make contributions to a tax-deferred retirement savings plan established for the benefit of employees.

457 plan. In the United States, an arrangement that allows state and local governments and their employees to make contributions to a tax-deferred retirement savings plan established for the benefit of employees.

5498. See IRS Form 5498.

AADLs. See advanced activities of daily living.

ABC. See activity-based costing.

absolute assignment. An irrevocable transfer of complete ownership of a life insurance policy or an annuity from one party to another. Contrast with collateral assignment. See also assignment.

ACB. See adjusted cost basis.

Accelerated Benefits Model Regulation. In the United States, a National Association of Insurance Commissioners (NAIC) model regulation designed to regulate accelerated death benefit provisions and to impose disclosure standards on insurers that provide such benefits.

accelerated death benefit. A benefit included in a life insurance policy or added to a life insurance policy through a policy rider that gives the policyowner the right to receive a portionÜusually between 50 and 80 percentÜof the policy's death benefit during the insured's lifetime when the insured is terminally ill as defined in the policy. Also known as terminal illness (TI) benefit.

acceptable alternative mechanism. For purposes of the Health Insurance Portability and Accountability Act (HIPAA) in the United States, a state-approved plan that provides health insurance coverage to all eligible individuals without imposing preexisting conditions exclusions and gives eligible individuals a choice of health insurance coverage.

accident insurance. A type of health insurance coverage that only provides benefits for an insured's death, dismemberment, disability, or medical care that results from the insured being in an accident. See also health insurance.

accidental death and dismemberment (AD&D) benefit. A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy's basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs or the sight in both eyes as the result of an accident.

accidental death benefit (ADB). A supplementary life insurance policy benefit that provides a death benefit in addition to the policy's basic death benefit if the insured's death occurs as the result of an accident. See also double indemnity benefit.

account. The basic tool that a company uses to record, group, and summarize similar types of financial transactions.

account fee. In unbundled variable insurance products, an annual charge to customers generally expressed as the lesser of a specified dollar amount or a percentage, such as 2 percent of the account value.

account form. The presentation format of a balance sheet in which asset accounts appear on the left side and liabilities and owners' equity accounts appear on the right side.

account payable. A liability account that represents a contractual promise of payment by the holder of the account to another party.

account receivable. An asset account that represents a contractual promise by another party to pay an amount to the holder of the account.

accounting. A system or set of rules and methods for collecting, recording, summarizing, reporting, and analyzing a company's financial information.

accounting controls. The policies and procedures used to authorize financial transactions, safeguard assets, and provide reliable, timely, and fairly presented financial information about a company.

accounting entry. A record of a financial transaction that includes at least one debit and one credit and shows the monetary value of the transaction in balance on a specified date. See also credit and debit.

accredited reinsurer. A reinsurance company that is not licensed in the ceding company's jurisdiction, but meets specified financial and reporting requirements of that jurisdiction and holds a license in and is domiciled in at least one other jurisdiction.

accrual-basis accounting. An accounting system in which a company records revenues when they are earned and expenses when they are incurred, even if the company has not yet received the revenues or paid the expenses.

accrued income. (1) In accounting, income that has already been earned, but which is not receivable until a specified date in the next accounting period. (2) In investments, the amount of interest that has been earned on a bond, but which is not yet payable to the bondholder as of the financial reporting date.

accumulated cost of insurance. For a life insurance product at a specified point in time, the total amount the insurer has paid in benefits, accumulated at interest.

accumulated value. The total of an amount of money invested plus the interest earned by that money.

accumulated value of an annuity. At any given date during the accumulation period of a fixed deferred annuity, the net amount paid for the annuity, plus interest earned, less the amount of any withdrawals or surrender charges. The accumulated value of a variable, deferred annuity is calculated based on the value of the contract owner's interest in the separate accounts used to fund the annuity. Also known as accumulation value of an annuity and account value of an annuity.

accumulated value of net premiums. For a life insurance product at a specified point in time, the total of the net premiums collected, accumulated at interest.

accumulation at interest dividend option. An option, available to the owners of participating insurance policies, that allows a policyowner to leave policy dividends on deposit with the insurer and earn interest. See also dividends and policy dividend options.

accumulation period. For a deferred annuity contract, the time period between the date that the contract owner purchases the annuity and either (1) the date that periodic income payments begin or (2) the date that the contract's surrender value is paid. During the accumulation period, the accumulation value of the annuity account grows.

accumulation unit. A unit of measurement that represents an ownership share in a selected subaccount of a variable deferred annuity during its accumulation period. After the accumulation period ends, the accumulation units are used to buy annuity units. See also accumulation period and annuity units.

ACLF. See adult congregate living facility.

ACLI. See American Council of Life Insurers.

acquisition-cost concept. See cost concept.

acquisition expenses. Costs that are directly attributable to the production of new business. See also policy acquisition expenses.

actively-at-work provision. A group insurance policy provision which states that, in order to be eligible for coverage, an employee must be actively at workÜrather than ill or on leaveÜon the day the coverage is to take effect. If the employee is not actively at work on that day, the group insurance coverage does not become effective until the next day that the employee is actively at work.

active management strategy. An investment strategy in which an asset manager views any security in a portfolio as potentially tradable, if doing so would improve the portfolio's performance. See also portfolio and security.

activities of daily living (ADLs). In long-term care insurance, activities such as eating, bathing, and dressing that an insured must be unable to perform in order to demonstrate a need for long-term care and, thus, qualify for long-term care benefits.

activity-based costing (ABC). An accounting method for estimating the price of a product or service that links costs to products based on the activities consumed in producing the products or services. See also activity cost.

activity cost. In activity-based costing (ABC), the cost attributable to a specified activity, such as telephone charges in an insurer's customer call center. See also activity-based costing (ABC).

activity ratios. Financial ratios, measuring the speed with which various assets are converted into sales or cash, that gauge the productivity and efficiency of a company. Also known as operating efficiency ratios.

actual cash value insurance. A type of homeowner's insurance that pays the policyholder an amount equal to the replacement cost of the property minus an amount for depreciation.

actual net debt. For purposes of determining the benefit payable under a consumer credit insurance policy, the lump-sum amount needed on any given date to pay off the debt, excluding unearned interest and any other unearned finance charges.

actuarial assumptions. The estimated valuesÜfor such elements of insurance product design as mortality rates, investment earnings, expenses, and policy lapsesÜon which an insurer bases its product pricing and policy reserve calculations.

actuarial cost method. A formal approach used for preparing valuations of defined benefit pension plan liabilities in order to ensure that the plan is adequately and systematically funded. Also known as actuarial funding method and pension plan valuation method.

actuarial function. The area of an insurance company responsible for seeing that the company's operations are conducted on a mathematically sound basis. In conjunction with other departments, it designs and revises a company's insurance products, establishes premium and dividend rates, determines what a company's reserve liabilities should be, and establishes nonforfeiture, surrender, and loan values. It also does the research needed to predict mortality and morbidity rates, to establish guidelines for selecting risks, and to determine the profitability of the company's products.

actuarial funding method. See actuarial cost method.

actuarial liabilities. See reserves.

actuarial memorandum. A report, required in many U.S. policy form filings, which demonstrates that the policy in question complies with all state insurance laws and regulations that apply to the actuarial (mathematical) soundness of the policy.

Actuarial Opinion and Memorandum Regulation (AOMR). Under the Standard Valuation Law in the United States, a requirement for insurers to (1) submit an actuarial opinion to state in essence that the insurer's reserves and associated assets make adequate provision for anticipated cash flows arising from the insurer's contractual obligations and (2) prepare an actuarial memorandum in support of the opinion. This memorandum is not submitted unless requested by an insurance department.

actuarial opinion statement. In the United States, a separate document that must be submitted along with the Annual Statement by insurance companies that issue interest-sensitive products; this document represents an independent analysis of an insurance company's financial data.

actuarial valuation of pension plan benefits. The outcome or process of finding the actuarial present value, as of a specified valuation date, of a defined benefit pension plan's future benefit payments.

actuarial valuation. A determination by an actuary, based on statistical probability, of the value of assets and/or liabilities.

actuary. A technical expert in insurance, annuities, and financial instruments who applies mathematical knowledge to industry and company statistics to calculate an insurance company's mortality rates, morbidity rates, lapse rates, premium rates, policy reserves, and other financial values. See also product actuary, valuation actuary, and appointed actuary.

ADA. See Americans with Disabilities Act