March 17, 2018

Life Insurance Glossary C



C risks (contingency risks). In the United States , four officially recognized categories of risk that the actuarial profession has identified as being vital to insurers. See alsoC-1 risk (asset risk)C-2 risk (pricing risk)C-3 risk (interest-rate risk), and C-4 risk (general management risk).

C-1 risk (asset risk). For insurers, the risk of a loss of asset value on investments in such assets as stocks, bonds, mortgages, and real estate.

C-2 risk (pricing risk). For insurers, the risk that an insurer’s experience with mortality or expenses will differ significantly from the actuarial assumptions used in product pricing, causing the insurer to lose money on its products.

C-3 risk (interest-rate risk). For insurers, the risk that market interest rates might shift, causing an insurer’s assets to lose value or its liabilities to gain value.

C-4 risk (general management risk). For insurers, the risk of losses resulting from the insurer’s ineffective general business practices, from the need to pay a special assessment to cover another insurer’s unsound business practices, from unfavorable regulatory changes, or from unfavorable changes in tax laws.

cafeteria plan. See flexible benefits plan.

calendar-year deductible. For medical expense insurance policies, an amount of eligible medical expenses that the insured must incur during a given calendar year (from January 1 to December 31) before the insurer becomes liable to pay any benefits for further covered expenses.

call center. Within a business organization, any group of individuals whose main function is to provide customer service by answering incoming customer calls or electronic mail messages that are routed through a computerized distribution system.

Canada Customs and Revenue Agency. The federal governmental agency responsible for enforcing the provisions of Canadian laws and regulations concerning income taxes.

Canada Health Act. In Canada , federal legislation that requires that each Canadian province provide its residents with health care coverage for hospital and medical services.

Canada Labour Code. Canadian federal legislation that mandates minimum wage and overtime standards that are similar to the standards established by the Fair Labor Standards Act in the United States.

Canada Pension Plan (CPP). A Canadian federal program that primarily provides retirement benefits for retirees who reside in all provinces except Quebec and who have contributed money into the plan during their working years. The program also provides a benefit to disabled workers, as well as to the widows, widowers, and surviving dependent children of deceased and disabled workers.

Canadian and British Insurance Companies Act. A Canadian federal statute that describes the requirements that federally incorporated Canadian insurers and British insurers must meet in order to transact business in Canada.

Canadian Council of Insurance Regulators (CCIR). In Canada, a committee of provincial superintendents of insurance that recommends uniform insurance legislation to the provinces.

Canadian Institute of Chartered Accountants (CICA). A professional organization of Canadian Chartered Accountants (CAA) that establishes generally accepted accounting principles (GAAP) for Canadian insurers to follow in recording and presenting their financial information.

Canadian Life and Health Insurance Association (CLHIA). An insurance industry association of life and health insurance companies operating in Canada.

Canadian Life and Health Insurance Compensation Corporation (CompCorp). In Canada, a federally incorporated, nonprofit company established by the Canadian Life and Health Insurance Association to protect insurance consumers against loss of benefits in the event a life or health insurance company becomes insolvent. Operates similarly to state guaranty associations. See also guaranty association.

Canadian Reinsurance Conference (CRC). An annual meeting of Canadian insurance companies and reinsurance companies that provides a forum for current life and health insurance and reinsurance issues. The CRC establishes the Canadian Reinsurance Guidelines.

Canadian Reinsurance Guidelines. A set of common reinsurance principles, established by the Canadian Reinsurance Conference (CRC), that can be voluntarily used as a basis upon which new reinsurance treaties can be written and existing treaties can be interpreted.

cancellable policy. An individual health insurance policy that gives the insurer the right to terminate the policy at any time, for any reason, simply by notifying the policyowner that the policy is cancelled and by refunding any advance premium paid for the policy. See also conditionally renewable policynoncancellable and guaranteed renewable policy, and optionally renewable policy.

cap. For an equity-indexed annuity contract, the upper limit on the amount of an index’s gain in value that will be credited to the annuity contract.

capacity. In insurance, the highest dollar amount of coverage that an insurer or reinsurer is financially able to accept on a specified risk.

capital. (1) An amount of money invested in a company by its owners, usually through the purchase of the company’s stock. Also known as owners’ equity. (2) Long-term funds.

capital and surplus. For insurers, the amount remaining after liabilities are subtracted from assets; owners’ equity in an insurance company.

capital and surplus ratios. Financial ratios insurance companies use to express the relationship between the insurer’s capital and/or surplus and its liabilities and thus to measure an insurer’s financial strength. Also known as capital ratios and capitalization ratios.

capital appreciation. An increase in the market value of invested assets.

capital budget. A budget that shows a company’s plans for the financial management of its long-term, high-cost investment proposals, such as new investments, major repairs to or remodeling of existing investments, acquisitions of other companies or lines of business, mandated safety and environmental improvements, expense reduction projects, and revenue expansion projects.

capital gain. The amount by which the selling price of an asset exceeds its purchase price. Contrast with capital loss.

capitalization ratios. See capital and surplus ratios.

capitalize. To record an expense, such as deferred acquisition costs, as an asset.

capital loss. The amount by which the purchase price of an asset exceeds its selling price. Contrast with capital gain.

capital ratios. See capital and surplus ratios.

capitation. A fee payment method used by some health maintenance organizations (HMOs) under which the HMO prepays a medical care provider a flat amount for each subscriber’s medical care—usually on a monthly basis.

captive agent. An insurance agent who is under contract to only one insurer and who is not permitted to sell the products of other insurers. Also known as exclusive agent.Contrast with broker.

captive reinsurer. A reinsurance company that is formed and controlled by an insurance company or another type of insurance marketer for the purpose of providing reinsurance to that insurer or marketer.

career agency system. See agency building distribution system.

career agent. A licensed insurance salesperson who is under contract with at least one insurance company. A career agent is considered to be an independent contractor and not an employee of the insurance company.

caregiver training benefit. A benefit provided in a long-term care (LTC) policy to cover the cost of training someone to help care for a covered person who is to receive LTC at home or at an alternate living facility.

case assignment system. A system for organizing underwriting work in which cases are distributed to an appropriate person or group for underwriting based on certain characteristics of the case; for example, the face amount requested, the type of application of policy change, or the geographic origin of the application or location of the agent. Contrast with work division system.

case management. A process insurers use in managed health care plans to evaluate the necessity and quality of an insured’s medical care and the appropriateness of alternative treatments or solutions for the insured’s medical care.

cash-basis accounting. An accounting system in which a company recognizes revenues or expenses only when it receives or disburses cash.

cash budget. A type of budget that projects a company’s beginning cash balance, cash inflows, cash outflows, and ending cash balance for a specified accounting period, typically by quarter.

cash disbursement. The payment of cash by a company.

cash disbursements budget. A schedule of expected cash disbursements, including their timing and amount, during the accounting period.

cash dividend option. For participating insurance policies, a dividend option under which the insurer sends the policyowner a check in the amount of the policy dividend. See also dividend and policy dividend options.

cash equivalents. Short-term assets that are not cash, but can typically be converted to cash within 90 days with little or no risk of losing value.

cash flow. Any movement of cash into or out of a company. A cash inflow is a source of funds and a cash outflow is a use of funds.

cash flow statement. A financial statement that provides information about an insurer’s cash receipts (inflows) and its cash disbursements (outflows) during a specified period.

cash-flow testing (CFT). The use of simulation modeling to project into a future period the cash flows associated with an insurance company’s existing business, as of a given valuation date, and to compare the timing and amounts of asset and liability cash flows after the valuation date. Contrast with dynamic financial analysis (DFA).

cash inflow. See cash flow.

cash management. The management of short-term funds. Also known as working capital management.

cash-out provision. See bailout provision.

cash outflow. See cash flow.

cash payment option. One of several nonforfeiture options included in life insurance policies and some annuity contracts that allows a policyowner to receive the cash surrender value of a life insurance policy or an annuity contract in a single payment. Also known as cash surrender optionSee also nonforfeiture options and cash surrender value.

cash receipt. A check, money order, electronic funds transfer (EFT), or other cash transaction that is remitted to a company as a form of payment for goods or services rendered.

cash receipts budget. A schedule of cash receipts expected during the specified accounting period.

cash surrender option. See cash payment option and cash surrender value.

cash surrender value. (1) For life insurance, the amount, before adjustments for factors such as policy loans, that the owner of a permanent life insurance policy is entitled to receive if the policy does not remain in force until the insured’s death. (2) For annuities, the amount of a deferred annuity’s accumulated value, less any surrender charges, that the contractholder is entitled to receive if the policy is surrendered during its accumulation period. Also known as cash value and surrender value.

cash value. See cash surrender value.

cash value accumulation test. For U.S. federal income tax purposes, one of the qualification tests an insurance policy must satisfy in order to be considered a life insurance contract that provides a tax-free death benefit. A policy passes this test if, according to the contract terms, the amount of its cash surrender value is never greater than the amount of net single premium needed to fund the policy death benefit.

casualty insurance. See liability insurance.

cat cover. See catastrophe reinsurance.

catastrophe reinsurance. A type of nonproportional reinsurance that protects a ceding company from multiple individual claims and/or excessive losses resulting from a single event. Also known as cat cover.

CBO. See collateralized bond obligation.

CCIR. See Canadian Council of Insurance Regulators.

CCRC. See continuing care retirement community.

CD. See certificate of deposit.

CDS. See Complaints Database System.

CDSC. See surrender charge.

CDSL. See surrender charge.

cede. An insurance company’s transfer of all or part of a specified risk to a reinsurance company.

ceding company. In a reinsurance transaction, the insurance company that purchases reinsurance to cover all or part of those risks that the insurer does not wish to retain in full. Contrast with reinsurer.

certificate holder. An individual who is insured under a group insurance contract and who has received a certificate of insurance. See also certificate of insurance.

certificate of authority. In the United States, a document issued by a state insurance department granting an insurer the right to conduct an insurance business in that state. Also known as license.

certificate of coverage. See certificate of insurance.

certificate of coverage provision. In the United States, a provision that most states require group life, health, and annuity policies to include which states that the insurer will issue a certificate to the policyholder for delivery to each person insured by the policy.

certificate of deposit (CD). A contractual agreement issued by a bank that returns the investor’s principal with interest on a specified date.

certificate of incorporation. In the United States, a document issued by a state agency that grants a corporation its legal existence and right to operate as a corporation. Also known as corporate charterSee also articles of incorporation.

certificate of insurance. In group insurance, a document that a group policyholder delivers to each group insured which describes the coverage provided and the group insured’s rights to insurance. Also known as certificate of coverageSee also master contract.

certificate of registry. In Canada, a document that is issued by the federal Minister of Finance and that grants an insurance company subject to federal regulation the right to transact business in Canada.

cession. Both the unit of insurance that an insurance company cedes to a reinsurer and the document used to record the transfer of risk from a ceding company to a reinsurer.

CFT. See cash-flow testing.

change in health statement. A statement contained in most individual life insurance applications and premium receipts that requires a proposed insured to notify the insurer in writing if her health or any material information in the application changes before the policy is delivered.

change of beneficiary provision. A provision included in individual life insurance policies and health insurance policies providing a death benefit that states the procedure the policyowner should follow for making a beneficiary change.

change of occupation provision. An individual disability income insurance policy provision that permits the insurer to adjust the policy’s premium rate or the amount of benefits payable under the policy if the insured changes occupation.

chargeback. A method for allocating costs within an organization that allocates indirect costs to departments based on a department’s usage.

children’s insurance rider. A rider that may be added to a whole life insurance policy that provides term life insurance coverage on the insured’s children.

chronically ill individual. Under the Health Insurance Portability and Accountability Act (HIPAA) in the United States, an insured person whom a licensed health care practitioner certifies as someone who is unable to perform, without substantial assistance, at least two activities of daily living (ADLs), or has a similar level of disability, or requires substantial supervision to protect themselves from threats to health or safety due to severe cognitive impairment. See also activities of daily living (ADLs).

churning. An unethical and often illegal sales practice designed to increase commission sales. (1) In insurance sales, churning can occur when an agent induces a policyowner to cash in a policy and buy another, even though the replacement is not in the policyowner’s best interest. See also replacement. (2) In stock and bond sales, churning can occur when a broker engages in excessive and unwarranted trading of clients’ accounts.

CICA. See Canadian Institute of Chartered Accountants.

CI insurance. See critical illness insurance.

Civil Rights Act of 1964. In the United States, a federal anti-discrimination statute that applies to employers that are engaged in interstate commerce and that have 15 or more employees. Title VII of this act prohibits employers from discriminating in hiring, advancement, wages, and other terms and conditions of employment on the basis of sex, race, color, religion, or national origin.

claim. A request for payment of benefits under the terms of an insurance policy following the occurrence of a covered loss.

claim administration. Within an insurance company, the insurance administration function that assesses each claim made, decides whether the claim is justified, and authorizes the payment of benefits to the proper person.

claim analyst. See claim examiner.

claimant. A person who submits a claim to an insurance company.

claim approver. See claim examiner.

claim examiner. An insurance company employee who is responsible for processing and paying claims for policy benefits that the insurer receives. Also known as claim approverclaim analyst, and claim specialist.

claim fraud. An action by which a person intentionally uses false information in an unfair or unlawful attempt to collect benefits under an insurance policy.

claim investigation. The process an insurer undertakes to obtain additional information necessary to make a claim decision.

claim liabilities. See policy and contract claims.

claim philosophy. A precise statement of the principles an insurer will follow in conducting claim administration.

claim reserves. On an insurance company’s financial statements, liabilities that identify the amounts that an insurer will pay in the future on claims already incurred but not paid in full as of the statement date. See also disabled life reserves.

claim settlement. A lump-sum payment by an insurer to a claimant in exchange for the claimant’s agreement to release the insurer from further responsibility for coverage under the policy.

claim specialist. See claim examiner.

class beneficiary designation. A life insurance policy beneficiary designation that identifies the beneficiaries of the policy as members of a group—for example, “my children”—rather than naming each person individually.

class of policies. All policies of a particular type that an insurer has issued or all policies an insurer has issued to a particular group of insureds.

Clayton Act. U.S. federal antitrust law that makes it unlawful for businesses to engage in certain actions that are believed to lessen competition and to lead to monopolies.

CLHIA. See Canadian Life and Health Insurance Association.

CLHIA Guidelines. Recommendations to insurance companies adopted by the Canadian Life and Health Insurance Association (CLHIA). Insurers are expected to abide by these guidelines as a condition of membership in the CLHIA.

closed contract. A contract for which only those terms and conditions that are printed in—or attached to—the contract are considered to be part of the contract. Contrast withopen contract.

closed group valuation. An assessment of the value of a pension plan that takes into account only the benefits of persons currently affiliated with the plan as active participants, terminated vested participants, retired participants, or beneficiaries. Also known as static valuationContrast with open group valuation.

closed panel HMO. A type of health maintenance organization (HMO) that requires physicians either to belong to a group of physicians that has contracted with the HMO or to be employees of the HMO in order to provide services to HMO members. Contrast with open panel HMO.

closing. (1) In insurance sales, the part of an insurance sales presentation that occurs when an agent secures a purchase commitment from a prospect by asking for and obtaining the prospect’s agreement to submit an application for the coverage recommended in the proposal. (2) Generally, a conclusion of a transaction, usually accomplished by satisfaction of all conditions stated in a purchase contract.

closing entry. An accounting entry that a company makes at the end of each accounting period to start the next accounting period with a zero balance in its temporary accounts.

CMO. See collateralized mortgage obligation.

COB provision. See coordination of benefits provision.

COBRA. See Consolidated Omnibus Budget Reconciliation Act.

COBRA continuation coverage. In the United States , group health insurance coverage provided to an individual who’s employer-provided group health insurance has terminated because of certain qualifying events that are specified in the Consolidated Omnibus Budget Reconciliation Act (COBRA). See also Consolidated Omnibus Budget Reconciliation Act (COBRA).

cognitive impairment. In long-term care (LTC) insurance underwriting, mental incapacity that prevents a person from performing activities of daily living (ADLs) or from living safely. See also activities of daily living (ADLs).

cognitive reinstatement provision. A provision in a long-term care (LTC) insurance policy that permits reinstatement of the policy if the reason for the policy’s lapse is that the policyholder has a cognitive impairment and that the reason for the missed premium payment was mental impairment.

coinsurance. (1) In medical expense insurance coverage, the percentage, usually 10 to 25 percent, of all eligible medical expenses, in excess of the deductible, that the insured is required to pay. Also known as expense participation feature. (2) In reinsurance, a type of proportional reinsurance in which an insurer and a reinsurer share the obligations of a policy, including paying the death benefit and the nonforfeiture values, and establishing the reserves.

coinsurance with funds withheld. A type of proportional reinsurance in which the ceding company retains funds that are due to the reinsurer, usually in an amount equal to the reserve required by law.

COLA benefit. See cost-of-living increase benefit.

cold calling. An insurance sales method in which an agent writes, calls, or visits prospects for insurance with whom he has had no prior contact. Also known as cold canvassing.

collateral assignment. A temporary transfer of some of the ownership rights in a particular property, such as a life insurance policy or an annuity contract, as collateral for a loan. The transfer is made on the condition that upon payment of the debt for which the contract is collateral, all transferred rights shall revert back to the original owner.Contrast with absolute assignment.

collateralized bond obligation (CBO). A type of bond that is secured by and represents a share in a portfolio of bond investments.

collateralized mortgage obligation (CMO). A type of bond that is secured by and represents a share in a portfolio of mortgage investments.

collision insurance. Insurance that covers an insured for losses to a vehicle caused by a collision regardless of whether the insured was at fault for the accident.

collusion. A secret agreement entered into by two or more persons to perpetrate an illegal act.

combination pension plan. A type of pension plan that uses both insured and uninsured funding. Also known as split-funded planContrast with trusteed pension plan andfully-insured pension plan.

combined retention. See corporate retention limit.

commingling of funds. In insurance sales, the illegal practice of combining money belonging to policyowners with an agent’s own funds.

commission. An amount of money paid to compensate a sales producer. For insurance sales, the amount is usually expressed as a percentage of the gross premiums paid by the insurance customer each year the policy is in force. For life insurance sales, the first-year commission is traditionally a higher percentage than the percentage commission paid in subsequent years. See also deposit-based commission schedule, level commission schedule, and levelized commission schedule.

committed cost. In accounting, a cost that results from a prior management decision and that cannot be changed quickly.

committee underwriting. A method used to organize underwriting work in which a committee of highly qualified people from inside and outside the underwriting function is called together for case assessment.

common cost. See indirect cost.

common disaster clause. A life insurance policy provision which states that the beneficiary must survive the insured by a specified period, such as 30 or 60 days, in order to receive the policy proceeds. Otherwise, the policy proceeds will be paid as though the beneficiary had died prior to the insured. Also known as survivorship clause and time clause.

common interest association. An association of individuals who share a common status or a common interest. Examples include associations of retired persons, gun owners, participants in a specific sport, or alumni of a specific college. Common interest associations typically are eligible for an association group insurance policy.

common stock. An equity asset that represents an ownership share in a corporation and that usually entitles the owner to vote on the selection of directors and on other important company matters and also entitles the owner to receive dividends on the stock. Contrast with preferred stock. See also dividend and equity assets.

community-property laws. In the United States, state laws, which provide that a spouse is entitled to receive an equal share of earned income and an equal share of property acquired by the other spouse during a marriage.

commutation right. The right granted by an insurer to an annuity contract owner to withdraw a lump sum from an annuity during the payout period. Any lump sum withdrawn reduces the dollar amount of future annuity payments.

commutative contract. An agreement under which the contracting parties specify the values that they will exchange; moreover, the parties generally exchange items or services that they think are of relatively equal value. Contrast with aleatory contract.

comparative financial statements. Financial statements that present a company’s data for two or more accounting periods so that interested users can identify similarities and differences.

CompCorp. See Canadian Life and Health Insurance Compensation Corporation.

compensatory damages. In a lawsuit, an amount of money awarded to a plaintiff for the actual damage suffered from another’s wrongdoing. See also punitive damages.

Competition Act of 1986. Canadian federal legislation designed to prevent undesirable monopolies, price fixing, and other anticompetitive or deceptive trade practices. In Canada, federally incorporated (registered) companies are subject to federal regulation.

complaint examiner. In the United States, a state insurance department employee who is responsible for handling complaints received from consumers about insurers.

Complaints Database System (CDS). In the United States, a database compiled and maintained by the National Association of Insurance Commissioners (NAIC) to provide state insurance regulators with aggregated complaint data on insurers across the country.

compliance. For insurers and their agents, the act of adhering to applicable laws and regulations that govern the operations of insurance companies.

compliance function. Within an insurance company, the area responsible for ensuring that all of the actions the insurer takes comply with applicable laws and regulatory requirements.

compound accounting entry. An accounting record of a financial transaction that affects more than two accounts.

compound interest. The type of interest that is earned on both the original principal amount and on the interest accumulated from earlier periods. Contrast with simple interest.

comprehensive budget. See master budget.

comprehensive personal liability insurance. Insurance that covers insureds from liability losses they incur that are not the result of practicing their profession or operating a vehicle.

comptroller. See controller.

concurrent review. A component of utilization review used by some health insurers whereby the utilization review organization monitors an insured’s treatment and prognosis while he is in the hospital. See also utilization review.

conditional premium receipt. A type of premium receipt that specifies certain conditions that must be met before temporary insurance coverage provided by the receipt becomes effective.

conditionally renewable policy. An individual health insurance policy that gives the insurer a limited right to refuse to renew the policy at the end of a premium payment period for reasons specified in the policy. For example, a disability income policy might specify the continued employment of the insured, and a long-term care insurance policy might specify a maximum age limit. See also cancellable policy, noncancellable and guaranteed renewable policy, and optionally renewable policy.

confirmation statement. See transaction confirmation.

conflict of laws. The area of law that determines which substantive laws apply to each issue in a case when the laws of more than one jurisdiction are involved in the action.

conformity with state statutes provision. In the United States, an individual health insurance policy provision which states that any policy provision in conflict with the laws of the state in which the insured resides is amended to conform to the minimum requirements of such laws.

conservation. In the insurance industry, an insurer’s efforts to ensure that insurance policies and annuities, once issued, do not lapse but are retained on the insurer’s books for as long as possible.

conservation unit. Within an insurance company, a group of employees dedicated to promoting conservation of policies.

conservative financial strategy. A financial management strategy that avoids risks and places an unusually strong emphasis on company solvency.

conservative mortality table. A mortality table with a mortality safety margin built into its rates. For annuities, a conservative mortality table shows lower mortality rates than the expected mortality rates. For life insurance policies, a conser-vative mortality table shows higher mortality rates than the expected mortality rates.

conservator. See receiver.

conservatorship. See receivership.

consideration. One of the requirements for the formation of a valid informal contract that is met when each party gives or promises to give something of value to the other party.

Consolidated Omnibus Budget Reconciliation Act (COBRA). A U.S. federal law that generally applies to employers with 20 or more employees and requires each group medical expense insurance plan to allow employees and certain dependents to continue their group coverage for a stated period of time following a qualifying event that causes the loss of group medical expense coverage.

constructive delivery of a policy. An insurance policy delivery that occurs when an insurer releases the policy with intent to be bound by it regardless of whether the policy is physically delivered to the applicant. For example, courts have found that constructive delivery occurs when a policy is mailed to an authorized agent of the insurer.

consultant. According to the Agents and Brokers Licensing Model Act in the United States, an individual, partnership, or corporation that, for a fee, offers advice, counsel, opinion, or service with respect to the benefits, advantages, or disadvantages promised under any insurance policy that could be issued in the state.

consumer credit insurance. Credit insurance that is subject to the requirements of the Consumer Credit Insurance Model Act, including credit life insurance, credit accident and health insurance, and credit unemployment insurance.

Consumer Credit Insurance Model Act. In the United States, a National Association of Insurance Commissioners (NAIC) model law that regulates consumer credit insurance issued or sold in connection with loans or other credit transactions for personal, family, or household purposes.

consumer credit report. Any communication of information by a consumer reporting agency that bears on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living and is obtained directly from the consumer’s creditors or from the consumer. Also known as consumer report.

consumer protection agency. In the United States, an agency within a state that is responsible for enforcing the state’s consumer protection laws.

consumer report. See consumer credit report.

consumer reporting agency. Any party that regularly assembles or evaluates consumer credit information or other information on consumers, either for profit or on a cooperative, nonprofit basis, for the purpose of furnishing consumer credit reports to other people and organizations.

contest. To dispute the validity of a contract.

contestable period. The time during which an insurer has the right to cancel or rescind an insurance policy if the application contained a material misrepresentation. See alsoincontestability provision.

contingency. (1) An exposure to risk. (2) For an insurance company, an unexpected event that causes the insurer’s actual expenses, investment earnings, mortality rates, or persistency rates to deviate significantly from company assumptions.

contingency allowance. An amount built in to an insurance product’s price to offset the possibility that unexpected events—such as greater-than-anticipated mortality rates, earthquakes, epidemics, or declines in expected investment earnings—may adversely affect a product’s profit margin.

contingency reserve. A voluntary, noncontractual reserve established by an insurer to supply added reserve protection against various special categories of risk, usually related to the C-1 through C-4 risks. See also special surplus.

contingency risks. See C risks.

contingent annuitant. A person who would become the annuitant if the primary annuitant were to die during the accumulation period of an annuity whose contract owner and annuitant are two different persons. See also annuitant.

contingent beneficiary. The party designated to receive the proceeds of a life insurance policy following the insured’s death if the primary beneficiary predeceased the insured. Also known as secondary beneficiary and successor beneficiarySee also primary beneficiary.

contingent deferred sales charge (CDSC). See contingent deferred sales load (CDSL).

contingent deferred sales load (CDSL). In variable life insurance or annuity products, a one-time charge potentially deducted from withdrawals and applied for recovery of sales expenses. Also known as contingent deferred sales charge (CDSC). See also surrender charge.

contingent payee. (1) For life insurance, the person or party who is to receive insurance policy proceeds in accordance with the terms of a settlement agreement following the payee’s death. Also known as successor payee. (2) For annuity contracts, a person designated by the annuity contract owner to receive any remaining annuity payments upon the death of the payee.

continuing care retirement community (CCRC). For long-term care (LTC) insurance, a type of assisted living facility that provides both separate housing and living arrangements of the boardinghouse type. Residents contract with the community for LTC services.

continuous-premium whole life insurance policy. A whole life insurance policy for which premiums are payable until the insured’s death. Also known as straight life insurance policy and ordinary life insurance policy.

contra account. In accounting, an account that accompanies a specified “companion” account—typically an asset account—and that has a normal balance that is the opposite of the companion account.

contract. A legally enforceable agreement between two or more parties. For an insurance or annuity product, the document that describes the legally binding agreement between the insurance company and the contract owner.

contract fee. See administrative fee.

contract form filing. In insurance, the process of contacting all appropriate regulatory jurisdictions and meeting their requirements in order to obtain clearance to sell a given product in that jurisdiction.

contractholder. See contract owner.

contract law. A body of law that governs the requirements for forming a legally binding contract and that specifies the rights and duties of the parties to the contract.

contract of adhesion. A contract that one contracting party prepares and that the other contracting party must accept or reject as a whole, without any bargaining between the parties. Insurance contracts are contracts of adhesion.

contract of indemnity. An insurance policy under which the amount of the policy benefit payable for a covered loss is based on the actual amount of financial loss as determined at the time of loss. For example, many medical expense policies are contracts of indemnity. Contrast with valued contract.

contract owner. The individual or entity who applies for, purchases, and owns a life insurance or an annuity contract. For an annuity, the contract owner usually is also the annuitant. Also known as contractholder.

contract summary. For an annuity, a document that identifies and describes the features of a specific annuity that a consumer is considering purchasing.

contractual reserve. See policy reserve.

contractual savings institution. A financial institution, such as an insurance company, that acquires funds at periodic intervals on a contractual basis.

contribution margin. When pricing a product, the difference between the product’s selling price and its variable costs.

contribution to surplus. In a mutual insurance company, the excess of revenues over expenses before payment of policy dividends.

contributory plan. (1) A group insurance plan under which individual group members must contribute some or all of the premium in order to be covered under the group plan. (2) A retirement plan that requires plan participants to make contributions to fund the plan. Contrast with noncontributory plan.

controller. The head of a company’s accounting function. Also known as comptroller.

conversion provision. A provision sometimes included in individual insurance policies or group insurance policies that allows the policyowner or insured group member to change from one type of insurance coverage to another in certain prescribed situations without presenting evidence that the insured is an insurable risk. (1) In individual term life insurance policies, the provision allows the policyowner to convert the term policy to a permanent plan of insurance. (2) In group life insurance, the provision allows a group insured whose coverage terminates for certain reasons to convert the group coverage to an individual policy of insurance. (3) For group long-term care insurance, the provision allows the group member leaving the group to convert the group coverage to an individual policy. Also known as conversion privilege and conversion feature.

convertible term insurance policy. A term life insurance policy that gives the policyowner the right to convert the policy to a permanent plan of insurance.

coordination of benefits (COB) provision. A provision in group medical expense plans that prevents duplicate benefit payments for the same expense by more than one insurer or by a government program and that defines the order in which the involved groups are to pay benefits. The purpose of the COB provision is to assure that an insured does not receive benefit amounts greater than his or her actual incurred medical expenses. See also overinsurance provision.

copayment. (1) For medical expense insurance plans, a portion of an insured’s medical costs that must be paid by the insured as a condition of the insurer paying the remaining portion. (2) For health maintenance organizations (HMOs), a fee imposed on HMO subscribers each time they receive specified medical services.

corporate bonds. Bonds issued by a corporation.

corporate budget. See master budget.

corporate charter. See certificate of incorporation.

corporate retention limit. In reinsurance, the maximum amount of risk that a group of affiliated companies will retain on any one life. Also known as combined retention.

corporation. A legal entity that exists separately from its owners and that can enter into contracts, sue in court or be sued, own property, and engage in other business transactions.

correspondent. For a particular group insurance plan, the person in the policyholder’s organization who serves as liaison with the insurer.

corridor. In reinsurance, an amount above the ceding company’s retention limit that a risk must meet or exceed before any part of the risk is ceded to a reinsurer. The purpose of the corridor is for the ceding company to avoid ceding small amounts of coverage.

cost accounting. An accounting system for accumulating expense data that is used to facilitate effective cost control and to make accurate estimates of future costs for use in the pricing of a company’s products.

cost allocation. The accounting process of assigning or distributing an indirect cost (expense) according to a specified method or formula. Also known as expense allocation.

cost basis. In insurance, the price paid for an insurance or annuity contract. (1) For an insurance contract, the sum of the net premiums paid, plus accumulated dividends, minus certain specified costs. (2) For an annuity contract, the portion of the annuity’s accumulated value on which income tax has already been paid.

cost center. A department or other segment of a business organization to which costs (expenses) can be traced.

cost comparison indexes. In individual life insurance sales, calculations by which to derive a cost figure for an individual life insurance policy. By comparing the index numbers derived for similar policies, a consumer has some basis on which to compare the costs of the policies.

cost concept. An accounting principle which states that companies should include items on the balance sheet and income statement according to their actual cost at the time of purchase. Also known as acquisition-cost concept.

cost object. Any purpose for which a company measures costs.

cost of benefits. The value of all contractually required benefits that a life insurance or an annuity product promises to pay.

cost-of-living adjustment (COLA) benefit. See cost-of-living increase benefit.

cost-of-living increase benefit. A disability income policy benefit that provides for periodic increases in the disability income benefit amount being paid to a disabled insured to compensate for an increase in the cost of living. Also known as cost-of-living adjustment (COLA) benefit.

cost recovery rule. (1) For annuities, a U.S. federal income tax rule stating that amounts withdrawn from an annuity are considered to be a return of the owner’s cost basis first and, thus, are non-taxable to the extent total amounts withdrawn do not exceed the cost basis. (2) For life insurance surrenders, a U.S.federal income tax rule under which a policyowner who receives the surrender value of a life insurance policy in a lump-sum payment is taxed on the amount of any gain realized from the surrender.

cost-volume-profit (CVP) analysis. The study of the effects of changes in product prices, sales volume, fixed costs, variable costs, and the type of products a company offers. Also known as breakeven analysis.

coupon advertisement. According to Canadian insurance regulations, (1) a sales inducement designed to invite the public to contract for insurance by the inclusion of an application for an individual insurance contract or (2) a broad description of coverage designed to invite the public to request an application for insurance with additional printed material for the purpose of issuing the applicant an individual insurance contract.

CPP. See Canada Pension Plan.

CPT. See Physicians’ Current Procedural Terminology.

CRC. See Canadian Reinsurance Conference.

credibility factor. In using blended rating to calculate premium rates for group insurance, a percentage that represents the amount of weight given to a group’s actual claim experience.

credit. A specified change made to the monetary value of a financial account. A credit increases the value of liability accounts, owners’ equity accounts, and revenue accounts, whereas it decreases the value of asset accounts and expense accounts.

credit accident and health insurance. See credit insurance.

credit card. An open-ended credit arrangement in which a lender agrees to pay for goods and services purchased by a consumer and the consumer repays the lender in monthly payments at a specified rate of interest on the amount of the monthly outstanding balance.

Credit for Reinsurance Model Law. A National Association of Insurance Commissioners (NAIC) model law that specifies the situations in which an insurer is entitled to reinsurance reserve credits.

credit insurance. Insurance that pays a benefit equal to part or all of the amount of unpaid debt under a credit transaction if the insured borrower dies or becomes disabled.

credit risk. The possibility of poor financial performance on the part of a business; also, the possibility that a borrower (an individual or a business) could be late with payments or could entirely fail to pay its obligations. Also known as default risk.

credit unemployment insurance. Insurance that provides funds for the payment of amounts due under a specific credit transaction while the insured debtor is involuntarily unemployed.

credit union group. A type of group that generally is eligible for group insurance coverage and that consists of members of a credit union.

creditable coverage. For purposes of the Health Insurance Portability and Accountability Act (HIPAA) in the United States, coverage of an individual under a group health plan or other specified health insurance coverage without a lapse of 63 days or more.

crediting rate. For a fixed annuity contract, the interest rate applied to a customer’s accumulation value.

creditor group insurance. A type of business insurance designed to pay for the economic loss suffered by a creditor when one of its borrowers dies before the debt is repaid. The group policy is issued to the creditor and insures the lives of its debtors.

credits. In the numerical rating system used for underwriting life insurance, an applicant’s medical, personal, and financial characteristics that have a favorable effect on the individual’s mortality rating and are assigned “minus” values. See also debits and numerical rating system.

critical illness (CI) insurance. A type of individual health insurance that pays a lump-sum benefit when the insured is diagnosed with a specified illness. Also known ascritical diagnosis insurance. Contrast with specified disease coverage.

cross-purchase method. A method of carrying out a partnership buy-sell agreement under which each partner agrees to purchase a proportionate share of a deceased partner’s interest in the partnership. Contrast with entity method.

cross-selling. Identifying a customer’s needs for additional financial products while selling a primary financial product.

CSR. See customer service representative.

cumulative dividends. A type of preferred stock dividend arrangement in which a company must pay in full any unpaid scheduled dividends on its preferred stock before it may pay any dividends on its common stock. See also common stock and preferred stock.

currency risk. The risk arising from changes in currency exchange rates.

current assets. See short-term assets.

current assumption whole life insurance. See interest-sensitive insurance.

current interest rate. (1) For an annuity contract, the interest rate, based on the prevailing interest rates in the economy when the annuity is purchased, that an insurer promises to pay for a specified time period—usually one, three, or five years. (2) Generally, the prevailing interest rate in the economy at a given time.

currently payable scale. As defined by the National Association of Insurance Commissioners (NAIC) Life Insurance Illustrations Model Regulation, a scale of nonguaranteed elements in effect for a policy on the date the illustration is prepared or declared to become effective within the next 95 days.

current market value. The price at which an asset can be sold under current economic conditions. Also known as fair market value.

current mortality rate. In a universal life (UL) insurance policy, the monthly mortality rate actually used to calculate the monthly mortality charge. This amount is generally substantially lower than the guaranteed maximum mortality rate. See also mortality rate.

current open claimants. For a particular group insurance plan, group members who are receiving short-term or long-term disability income benefits.

current ratio. A ratio that divides a company’s current assets by its current liabilities to measure its short-term debt-paying ability.

custodial care. In long-term care (LTC) insurance, care that is largely of a non-medical nature, in which a patient receives assistance with activities of daily living provided by nurses or other qualified persons at a nursing home or a similar facility.

customer service. The broad range of activities that a company and its employees undertake in order to keep customers satisfied so they will continue doing business with the company and speak positively about the company to other potential customers.

customer service representative (CSR). Any person, other than a sales person, who provides support to customers face-to-face or through communications media.

CVP analysis. See cost-volume-profit analysis.



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