March 17, 2018

Life Insurance Glossary F


Life Insurance Glossary provided by LOMA’s Glossary of Insurance and Financial Services Terms


face amount. For a fixed-amount whole life insurance policy, the amount of the death benefit payable if the insured person dies while the policy is in force.

face-to-face assessment. In long-term care (LTC) insurance underwriting, a meeting between a proposed insured and an interviewer who represents the insurance company and who is usually employed by a vendor to observe an applicant’s physical and mental condition. Contrast with functional assessment.

face value. For a bond or other debt security, the amount stated on the security.

facility-of-payment clause. A life insurance policy provision that permits the insurance company to pay all or part of the policy proceeds either to a relative of the insured or to anyone who has a valid claim to those proceeds.

fac-ob. See facultative-obligatory reinsurance.

factor table. A chart insurers use to prescribe the amount of life or disability income insurance coverage which an insurance applicant is eligible to purchase. This chart shows the maximum amount of insurance, expressed in multiples of a person’s salary or total income, that an insurer will typically approve in each of several age ranges. See alsopercentage of income rule.

facultative-obligatory (fac-ob) reinsurance. A type of reinsurance agreement that allows a ceding company to choose whether to submit cases to a reinsurer and requires the reinsurer to accept the cases based on the ceding company’s underwriting, up to an amount defined in the agreement, if the reinsurer has available capacity.Contrast with automatic reinsurance.

facultative reinsurance. A type of reinsurance agreement that allows (1) a ceding company to choose whether to ask a reinsurer to consider coverage on a risk, (2) the reinsurer to choose whether it wishes to participate in the risk, and (3) the ceding company to choose whether to accept the reinsurer’s offer on the risk, if an offer is made.Contrast with automatic reinsurance.

Fair Credit Reporting Act (FCRA). In the United States, a federal law that regulates the reporting and use of consumer credit information and seeks to ensure that reports from consumer reporting agencies contain only accurate, relevant, and recent information. See also consumer credit report and consumer reporting agency.

Fair Labor Standards Act (FLSA). In the United States, a federal law that establishes minimum wage, overtime pay, record keeping, and child labor standards that affect workers in most private companies and federal, state, and local governments.

fair market value. See current market value.

Family and Medical Leave Act (FMLA). Federal legislation in the United States that requires companies with 50 or more employees within a 75-mile radius to grant eligible employees an unpaid leave of up to 12 weeks for family and medical emergencies, including childbirth, adoption, and illness of a child, spouse, parent, or the employee.

family benefit coverage. A type of supplementary benefit rider offered in conjunction with a life insurance policy that insures the lives of the insured’s spouse and children. Also known as dependent life insurance and spouse and children’s insurance rider.

family income coverage. A plan of decreasing term life insurance that provides a stated monthly income benefit amount to the insured’s surviving spouse if the insured dies during the term of coverage. The benefit amount provides an income for a predetermined period to help support the insured’s family.

family policy. A type of life insurance policy that covers all the members of a family under one contract. The primary insured is issued a whole life insurance policy; and the insured’s spouse and children receive term life insurance coverage.

FASB. See Financial Accounting Standards Board.

FAST system. See Financial Analysis and Solvency Tracking System.

favorable deviation. In insurance product design, a difference between actual and assumed product values that produces an increase in actual product profitability relative to assumed product profitability. Contrast with adverse deviation.

favorable variance. In accounting, a cost variance in which the standard cost is higher than the actual cost. Contrast with unfavorable variance.

FCRA. See Fair Credit Reporting Act.

FDIC. See Federal Deposit Insurance Corporation.

Fed. See Federal Reserve System.

Federal Deposit Insurance Corporation (FDIC). In the United States, a federal agency that insures deposits made into member banks and savings and loans up to $100,000 per person/per institution.

Federal Reserve System. In the United States, the federal banking system that is made up of 12 regional banks and member state and national banks and is designed, among other things, to supervise and regulate member banks and protect the credit rights of consumers. Often referred to as the Fed.

Federal Trade Commission (FTC). A U.S. federal regulatory agency that enforces antitrust and trade practices laws. The FTC is empowered to, among other things, (1) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (2) seek monetary redress and other relief for conduct that injures consumers; (3) adopt trade regulation rules to define specific acts or practices that are unfair or deceptive and establish requirements designed to prevent such acts or practices; (4) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (5) make reports and legislative recommendations to Congress.

Federal Unemployment Tax Act. Federal legislation in the United States that, when combined with individual state laws, provides covered individuals with protection against loss of income resulting from unemployment.

fee schedule payment structure. A payment method some health maintenance organizations (HMOs) use to reimburse medical care providers that places maximum limits on the dollar amounts the HMO will pay for covered medical procedures and services.

Fellow of the Society of Actuaries (FSA). A professional designation that an actuary may use when he or she completes a course of examination in addition to those completed for the ASA. See also Associate of the Society of Actuaries (ASA).

fiduciary. A person or other legal entity who holds a special position of trust or confidence when handling the business affairs of another and who must put the other’s interests above his or her own.

field advisory councils. Groups of insurance sales agents who provide feedback about a new insurance product.

field force. An insurer’s collective sales agents.

field office. An insurance company’s local sales office. Also known as insurance agency.

field officer. A home service insurance marketing officer who supervises district managers and carries out large-scale marketing planning. Also known as regional vice president.

field underwriting manual. A document, developed by an insurance company, that presents specific guidance for an agent’s assessment of the risk represented by a proposed insured, and guides the agent in assembling and submitting the evidence of insurability needed for the underwriter to evaluate the risk.

fifth dividend option. See additional term insurance option.

file and use requirement. In the United States, a regulatory policy under which an insurer may use certain policy forms after filing those forms with the state insurance department.

financial accounting. A field of accounting that focuses primarily on reporting a company’s financial information to meet the needs of the company’s external users.

Financial Accounting Standards Board (FASB). A private organization, funded by the accounting profession and companies with an interest in accounting practices, that establishes and promotes the use of generally accepted accounting principles (GAAP) in the United States.

Financial Analysis and Solvency Tracking (FAST) system. A system used by the National Association of Insurance Commissioners (NAIC) in the United States to detect financial distress in large insurance companies. The FAST system uses two types of analysis to examine an insurer’s financial statement information: ratio analysis of the insurer’s most recent financial statements, and analysis of the five-year history of specific aspects of the insurer’s financial statements.

financial auditing. The process of examining and evaluating company records and procedures to ensure that the company’s accounting records and financial statements are presented fairly and reasonably, quality assurance is maintained, and operational procedures and policies are effective.

financial condition examination. In the United States, a type of routine on-site regulatory investigation of insurers for the purpose of identifying and monitoring any threats to the insurer’s solvency. Contrast with market conduct examination. See also on-site regulatory examination.

Financial Disclosure Form. A form that some insurers require an insurance applicant to read, understand, and sign, which provides information about an insurance product’s investment options, expenses, charges, and other specifics.

financial institution. A business entity that collects funds from net suppliers of funds and places these funds in financial assets, thus channeling the funds to net users of funds. Also known as financial intermediary.

financial intermediary. See financial institution.

financial instrument. See security.

financial leverage. The magnification of an entity’s risk and return that occurs when the entity incurs fixed financing costs, usually by borrowing funds.

financial planner. A professional who analyzes a client’s financial circumstances and goals and prepares a program, usually in writing, to meet the client’s financial goals.

financial planning. A coordinated process for identifying, planning for, and meeting goals related to financial needs for individuals, families, and small businesses.

financial ratio. A percentage that expresses a relationship between two pieces of financial information.

financial ratio analysis. The process of calculating the relationships between various pairs of financial statement values for the purpose of assessing a company’s financial condition or performance.

financial reinsurance. Reinsurance coverage that allows a ceding insurance company to improve its financial position through the timing and the method of risk transfer. See also ceding company and reinsurance.

financial reporting. The process of presenting financial data about a company’s financial position, the company’s operating performance, and its flow of funds for an accounting period.

financial risk. The risk that a business will be unable to pay its financial obligations on time.

financial services industry. Financial institutions that help consumers, businesses, and governments save, borrow, invest, and otherwise manage money. See also financial institution.

Financial Services Modernization Act. See Gramm-Leach-Bliley (GLB) Act.

financial statements. Standardized reports of a company’s major monetary events and transactions.

financial subsidiary. According to the Gramm-Leach-Bliley Act in the United States, a corporation that is owned or controlled by a financial holding company and engages in specified financial activities.

financial transaction. A business transaction to which a company must assign an objective monetary value, whether the impact on the company is large or small, actual or expected.

financial worksheet. A document used during the underwriting of insurance that enables an underwriter to organize an insurance applicant’s financial information and to develop a clear picture of the person’s financial situation.

financing activities. Transactions that involve borrowed funds and cash payments to or from a company’s owners.

fire policy. A homeowner insurance policy that covers the insured dwelling and/or contents from damage caused by fire and other perils, such as smoke, riot, hail, tornado, explosion, and lightning.

first-dollar coverage. Medical expense insurance coverage under which the insurer begins to reimburse the insured for the payment of eligible medical expenses without first requiring the insured to satisfy a deductible or coinsurance amount.

first dollar quota share arrangement. A method of proportional reinsurance in which a ceding company cedes a certain percentage of the entire risk to an assuming company or companies despite the presence of a retention limit—that is, the ceding company cedes coverage from the first dollar. See also ceding company, reinsurance,and retention limit.

first excess. In a layering reinsurance arrangement involving two or more reinsurers, the amount in excess of an insurer’s retention limit up to a specified amount. See alsolayering and second excess.

first-to-die life insurance. See joint life insurance.

fiscal year. A 12-month accounting period chosen by a company for financial reporting purposes.

fixed account. For a variable annuity, an investment subaccount into which contract owners can place money that will earn a guaranteed fixed rate of interest for a specified period of time. Also known as variable guaranteed account. See also subaccount.

fixed account provision. A variable life insurance policy provision that defines a fixed account and stipulates the minimum annual interest rate for the account. Also known as general account provision.

fixed-amount budget. See static budget.

fixed amount option. (1) A life insurance policy settlement option under which the insurer pays equal installments of a stated amount until the policy proceeds, plus the interest earned, are exhausted. See also settlement options. (2) An annuity payout option under which the insurer determines the length of time that the annuity’s accumulated value will provide a pre-selected periodic payment. See also payout options.

fixed annuity. An annuity for which the insurer assumes the contract’s investment risk and guarantees to pay a specified rate of interest on the accumulated value for a specified period of time. Premiums paid for a fixed annuity are paid into an insurer’s general account. Contrast with variable annuity. See also deferred annuity andimmediate annuity.

fixed budget. See static budget.

fixed cost. A business cost that remains constant regardless of the level of operating activity or production. Contrast with variable cost.

fixed dividends. Preferred stock dividend payments that are fixed in both schedule and amount.

fixed payout. A type of annuity payment guaranteed to remain the same throughout the payout period. See also payout period.

fixed period option. (1) A life insurance policy settlement option under which the insurer pays the policy proceeds and interest in a series of annual or more frequent installments for a preselected period. See also settlement options. (2) An annuity payout option under which the insurer makes annuity payments for a specified period of time. See also payout options.

flat extra premium method. In life insurance, an approach to calculating the premium amount for substandard risks when the extra risk is considered to be constant. For every $1,000 of insurance applied-for, a specified extra dollar amount will be added to the standard premium. Also known as flat rating.

flat rating. See flat extra premium method.

flexible-amount budget. See flexible budget.

flexible benefits plan. An employee benefit plan in which each employee receives a statement of the total dollar amount of optional benefits available to him; each employee then decides which benefits he wants and allocates his funds to pay for those benefits. Also known as cafeteria plan.

flexible budget. A budget that provides alternative sets of budget estimates to use under the different circumstances that may arise during an accounting period. Also known as dynamic budget and variable budget.

flexible premium. A premium payment method sometimes offered in connection with annuities and with some types of life insurance that allows the contract owner or policyowner to alter the amount and the frequency of payments, within specified boundaries defined by the insurer and the law.

FLSA. See Fair Labor Standards Act.

FMLA. See Family and Medical Leave Act.

foreclosure. A legal procedure by which a lender recovers an unpaid loan balance by obtaining title to the real property offered as collateral if the borrower fails to make timely contractual principal and interest payments on the loan.foreign corporation. (1) From the point of view of any state in the United States, an insurance company that is incorporated under the laws of another state. (2) In Canada, a company that is incorporated under the laws of another country. Also known as nonresident corporation.

Foreign Insurance Companies Act. A Canadian federal statute which describes the requirements that foreign insurers must meet in order to transact business in Canada.See also foreign corporation.

forfeiture. Any pension plan account balance abandoned by participants who leave the plan before they have a right to keep those benefits.

Form 1099. See IRS Form 1099.

Form 5498. See IRS Form 5498.

formal contract. A contract that is enforceable because the parties to the contract met certain formalities concerning the form of the agreement. For example, formal contracts generally must be in writing and must contain some form of seal in order to be enforceable. Contrast with informal contract.

forward contracts. Limited time agreements in which a seller promises to deliver a specified investment to a buyer sometime in the future for a price that is specified in the agreement. See also futures contracts.

forward pricing rules. In the United States, Security and Exchange Commission (SEC) rules that govern the subaccount values that insurers must use to process contributions to and distributions from variable annuities.

fraternal benefit society. See fraternal insurer.

fraternal insurer. A nonprofit organization that is operated solely for the benefit of its members and that provides its members with social and insurance benefits. Also known as fraternal benefit society.

fraud. An act by which someone intentionally deceives another party and induces that other party to part with something of value.

fraudulent claim. An insurance claim for which the claimant attempts to collect policy benefits by providing false information to an insurer.

free-examination provision. See free-look provision.

free-look provision. A life insurance, health insurance, and annuity policy provision that allows the policyowner or contract owner a specified period, usually at least 10 days, following policy delivery within which to cancel the policy and receive a refund of all premiums paid. Also known as ten-day free look provision.

free surplus. See divisible surplus.

free withdrawal provision. Deferred annuity contract provision which gives the contract owner the right to withdraw a portion of the accumulated value without paying a surrender charge and defines how the free withdrawal amount will be determined.

front-end load. A sales charge that a purchaser of an investment product pays at the time of the purchase to defray the sales commission which a sales producer collected for selling the product. Also known as sales charge. Contrast with back-end loadSee also no-load fund.

fronting. A reinsurance arrangement in which a licensed insurer, known as the fronting company, issues a policy on a risk for, and at the request of, one or more other unlicensed insurers with the intent of ceding the entire risk to the other insurer or insurers through reinsurance.

front-load annuity. See front-loaded policy.

front-loaded policy. A life insurance policy or a deferred annuity contract in which most of the expense charges associated with acquiring the business are included in the premium payments for the product. Contrast with back-loaded policy.

FSA. See Fellow of the Society of Actuaries.

FTC. See Federal Trade Commission.

fulfillment kit. When selling insurance through a direct response distribution system, the package of materials designed to address or “fulfill” a respondent’s request for insurance.

full-disclosure accounting concept. An accounting principle which states that a company’s financial statements must contain all material information about the company and that the company must disclose any additional information or fact that, by its omission, could mislead an interested user of the company’s financial information.

full portability provision. A group long-term care (LTC) policy provision that allows a person to continue coverage under the group LTC policy after leaving the group.

full-scope regulatory examination. In the United States, a state regulatory examination of an insurer’s financial position taken as a whole to identify insurers having financial difficulties. Contrast with limited-scope regulatory examination.

fully-insured group plan. A group insurance plan for which the group policyholder makes monthly premium payments to the insurance company and the insurer is financially responsible for paying all claim payments or benefit payments to the group insureds. Contrast with self-insured group plan.

fully-insured pension plan. A pension plan for which an insurance company is financially responsible for the payment of pension benefits. Pension benefits may be provided for plan participants through group contracts covering a group of participants or individual contracts for each participant. See also deposit administration contract, group deferred annuity, and immediate participation guarantee (IPG) contract.

functional assessment. In long-term care (LTC) insurance underwriting, the process of examining the cognitive status of the proposed insured and the extent to which the proposed insured is able to perform the activities of daily living. Contrast with face-to-face assessment. See also activities of daily living and cognitive impairment.

functional cost analysis. An accounting cost control tool in which the accumulated costs for a functional activity within an organization are compiled and compared with previous data or with comparable data from similar organizations.

functional costs. The accumulated costs of the activities involved within a certain function, without regard to organizational units.

funding vehicle. The means for investing the assets of a retirement plan as those assets are accumulated. The two primary funding vehicles for pension plans are trusteed pension plans and fully-insured pension plans. See also combination pension planfully-insured pension plan, and trusteed pension plan.

future purchase option benefit. A supplemental benefit that is provided by some disability income policies and that gives the insured the right to increase the policy’s benefit amount in accordance with increases in the insured’s earnings usually without providing evidence of insurability.

future value (FV). The value of a sum of money—invested at a specified interest rate—at the end of a given period of time. Contrast with present value (PV).

future value interest factor (FVIF). A number used to calculate at a specified interest rate the future value of a present amount as of a given time. A future value interest factors table shows the future value of $1.00 for various interest rates and a number of compounding periods. Contrast with present value interest factor (PVIF).

future value interest factor for an annuity (FVIFA). A number that represents the future value of a $1.00 annuity at a given rate of interest and for a stated number of periods. Also known as compound value interest factor for an annuityContrast with present value interest factor for an annuity (PVIFA).

future value of an annuity. The amount that a series of equal payments earning a given rate of compound interest will accumulate by a given future date. Contrast withpresent value of an annuity.

future value of an annuity due (FVAd). The future value of an annuity in which the payment occurs at the beginning of each payment period. Contrast with future value of an ordinary annuity (FVA).

future value of an ordinary annuity (FVA). The future value of an annuity in which the payment occurs at the end of each payment period. Contrast with future value of an annuity due (FVAd).

futures contracts. Limited-time agreements that give the owner of the agreement the right to buy or sell a specified investment in the future for a price that is set through trading on an organized exchange. See also forward contracts.

FV. See future value.

FVA. See future value of an ordinary annuity.

FVAd. See future value of an annuity due.

FVIF. See future value interest factor.