Life Insurance Carriers Industry Terminology

Accelerated Death Benefit (ADB)

A provision or rider that lets a policyowner access a portion of the death benefit while the insured is still alive, typically upon diagnosis of terminal, chronic, or critical illness. Accessed amounts reduce the ultimate death benefit and may incur fees or interest.

- The client added an ADB rider to help cover potential long-term care costs. - An ADB payout will reduce the policy’s remaining death benefit. - The policy’s ADB triggers upon physician certification of a terminal illness.

Accelerated Underwriting

An underwriting approach that uses data sources (e.g., prescription histories, credit-based insurance scores, MVR, MIB) and predictive models to waive fluids and exams for eligible applicants, speeding decisions while managing risk selection.

- The carrier’s accelerated underwriting program offers up to $1 million with no labs. - We’ll run MIB, prescription, and motor vehicle checks to qualify for accelerated underwriting. - Accelerated underwriting shortened cycle time from six weeks to five days.

Actuarial Present Value (APV)

The discounted expected value of future cash flows (benefits, expenses, and premiums) using assumed probabilities (mortality, lapse) and discount rates. Central to pricing, reserving, and profitability analysis.

- Pricing used APV of benefits minus premiums discounted at 4 percent. - Reserve adequacy was assessed by comparing APV of obligations to assets. - APV changed when we updated mortality and lapse assumptions.

Adverse Selection

The tendency for higher-risk individuals to buy or retain insurance more than lower-risk individuals, leading to worse-than-expected claims unless mitigated by underwriting, pricing, product design, and distribution controls.

- Guaranteed issue products require higher prices to offset adverse selection. - We tightened underwriting to mitigate adverse selection risk. - Adverse selection worsened when lapses increased among healthy lives.

Agent/Broker

Licensed intermediaries who market and sell life and annuity products to consumers and businesses. Can be captive (tied to one carrier) or independent/broker, typically compensated via commissions and incentives.

- The broker submitted the case through the independent channel. - Captive agents sell only one carrier’s products; brokers can access multiple carriers. - We adjusted commission schedules for our top agents.

Anti-Money Laundering (AML)

Regulatory controls that detect and deter money laundering or terrorist financing via life policies, premiums, transfers, loans, and surrenders. Requires customer identification, ongoing monitoring, and reporting of suspicious activities.

- AML procedures flagged a large single premium for enhanced due diligence. - The AML officer reviewed a suspicious policy loan pattern. - Agents must complete AML training annually.

Annuity

A contract that provides tax-deferred accumulation and, optionally, systematic or lifetime income. Types include immediate/deferred, fixed/indexed/variable; features may include living and death benefit riders.

- The client purchased a deferred fixed annuity for guaranteed accumulation. - He annuitized part of his contract to receive lifetime income. - Variable annuity riders require additional fees and hedging.

Asset-Liability Management (ALM)

Coordinating investment strategy with liability cash flows to control interest rate, liquidity, and reinvestment risks. Techniques include duration and convexity matching, cash-flow testing, and hedging.

- We extended portfolio duration to improve ALM matching. - ALM stress testing showed exposure to rising lapse and rate scenarios. - The ALM team rebalanced to meet PBR cash flow requirements.

Beneficiary

The person or entity designated to receive policy proceeds upon the insured’s death. Designations can be primary/contingent, revocable/irrevocable, and may include trusts or charities.

- The owner named her spouse as primary beneficiary and a trust as contingent. - An irrevocable beneficiary requires consent to change. - We verified beneficiary designations before processing the claim.

Benefit Ratio (Claims Ratio)

Benefits (death claims or payouts) divided by premiums, used to monitor profitability and experience. In life insurance it’s often analyzed by cohort, duration, and product type.

- The product targets a 55 percent benefit ratio over the life of the block. - Rising benefit ratios signaled worse mortality than expected. - We track benefit ratio by issue year and duration.

Cash Surrender Value

The amount available to the policyowner upon surrender, net of applicable charges and outstanding loans. For permanent policies, it reflects accumulated value less surrender charges and other deductions.

- The policy’s cash surrender value is account value minus the surrender charge and loan. - She surrendered her UL policy to fund retirement needs. - Taxable gain may arise when cash value exceeds basis.

Contestability Period

A limited window, typically two years after issue or reinstatement, during which the insurer may investigate and rescind coverage for material misrepresentation on the application.

- The claim is within the two-year contestability period, so underwriting red flags are reviewed. - After contestability, the carrier generally cannot rescind for misstatements absent fraud. - Agents must explain the contestability clause at delivery.

Conversion Option

A provision allowing the policyowner to exchange a term policy for a permanent policy without new underwriting, usually within a specified time or before a certain age.

- The client plans to convert term coverage to whole life before the deadline. - No new evidence of insurability is required for a conversion. - We offer conversion credits that offset first-year premium.

Cost of Insurance (COI) Charge

The mortality charge deducted from a universal life policy’s account value, usually calculated as a rate per thousand on the net amount at risk and varying by age, sex, class, and duration.

- COI is applied monthly on the net amount at risk. - The client’s COI increased as he aged. - COI rates are capped by the contract’s guaranteed maximums.

Death Benefit

The amount payable to beneficiaries upon the insured’s death, as defined by the policy. Structures include level, increasing, and rider-enhanced benefits.

- The UL offers level or increasing death benefit options. - Loans and withdrawals can reduce the death benefit. - The policy includes a return-of-premium death benefit rider.

Deferred Acquisition Costs (DAC)

Capitalized incremental costs of acquiring new business (e.g., commissions, underwriting) that are amortized over time under accounting frameworks such as US GAAP; separate treatment under statutory and IFRS regimes.

- We capitalized commissions into DAC and amortize over expected persistency. - A lapse spike accelerated DAC amortization. - DAC tax adjustments impacted reported earnings.

Dividends (Participating)

Distributions of surplus to participating policyholders based on carrier experience (mortality, expenses, investment). Not guaranteed; can be applied to reduce premium, accumulate at interest, or purchase paid-up additions.

- The board declared a lower dividend scale for participating whole life. - Clients can take dividends in cash or as paid-up additions. - Dividend projections in illustrations are not guaranteed.

Embedded Value (EV)

A measure of the economic value of an insurer’s existing business, typically equal to adjusted net asset value plus the present value of future profits from in-force policies.

- The group reported EV growth driven by new business margins. - We reconciled movement analysis from EV to IFRS 17 metrics. - Assumption updates reduced the in-force EV.

Evidence of Insurability (EOI)

Information demonstrating that an applicant or insured meets underwriting health and risk criteria, often including medical records, exams, labs, and third-party data checks.

- The conversion requires EOI only for face amount increases. - EOI includes MIB, attending physician statements, and labs. - The group plan waived EOI during open enrollment.

Experience Study

An actuarial analysis comparing actual results (mortality, lapse, expense) to assumptions to refine pricing, reserving, valuation, and capital models.

- The mortality experience study supports updating our pricing table. - Lapse experience studies feed PBR and RBC modeling. - Expense studies informed the new product loadings.

Face Amount

The stated death benefit amount in the policy contract, sometimes adjusted by riders or policy option elections; distinct from account value or cash value.

- The client requested an increase in face amount. - The base face amount excludes riders and supplemental benefits. - Reinsurance attaches above a retention on face amount.

General Account

The pool of assets owned by the insurer that supports obligations of guaranteed products and liabilities, typically invested in fixed income and subject to regulatory capital and ALM constraints.

- UL guarantees are supported by the insurer’s general account. - We shifted general account assets toward higher-quality corporates. - General account yields influence crediting rates.

IFRS 17

The international insurance accounting standard that recognizes insurance contract profit over service via the contractual service margin, requires current estimates, and introduces a risk adjustment for non-financial risk.

- IFRS 17 introduces the contractual service margin to defer unearned profit. - We transitioned from IFRS 4 to IFRS 17 with new data and modeling. - Risk adjustment methodologies differ from Solvency II.

Illustration (Policy Illustration)

A regulated, hypothetical projection of policy values under specified assumptions (crediting rates, dividends, expenses), showing guaranteed versus non-guaranteed elements and required disclosures.

- The illustration shows guaranteed and non-guaranteed values. - Regulators require disclosures on how assumptions may change. - We re-illustrated after the client reduced premium funding.

In-Force

Policies that are currently active and not lapsed, surrendered, or matured; often managed as a distinct block for profitability, capital, and customer outcomes.

- Management is optimizing the in-force block for persistency and spread. - In-force management actions include repricing COI within contractual limits. - The carrier closed a block to new sales but continues in-force servicing.

Indexed Universal Life (IUL)

A form of universal life where interest is credited based on an external index subject to caps, participation rates, and floors, with downside protection and limited upside relative to the index.

- The client chose an S&P 500 point-to-point IUL strategy with a 10 percent cap. - We hedged the IUL index credits using options. - IUL illustrations must follow AG 49 rules.

Insurable Interest

A legal requirement that the policyowner would suffer financial or emotional loss upon the insured’s death. Generally must exist at policy issuance to prevent wagering on lives.

- The trust must demonstrate insurable interest at policy inception. - Employer-owned life insurance requires proper insurable interest documentation. - Lack of insurable interest can void a policy.

Lapse Rate

The proportion of policies terminating without value over a period due to nonpayment or cancellation. A key driver of profitability, reserve levels, and capital requirements.

- We targeted a 10 percent first-year lapse rate improvement. - Higher lapse rates increased COI revenue but hurt long-term profitability. - PBR modeling is sensitive to lapse assumptions by duration.

Life Settlement

The sale of an in-force life insurance policy by the owner to a third-party investor for a lump sum greater than the cash surrender value but less than the death benefit.

- The policyowner explored a life settlement for more than the cash value. - We screened for STOLI concerns before consenting to ownership change. - State regulations govern life settlement brokers and disclosures.

Medical Information Bureau (MIB)

An industry-owned information service that helps insurers detect material misrepresentations and omissions by sharing coded underwriting information among member companies, with consumer protections.

- MIB reported a prior decline for elevated blood pressure. - We will clear the MIB code discrepancy with the applicant. - MIB checks are standard in accelerated underwriting.

Mortality Table

A statistical table of death probabilities by age, sex, risk class, and duration. Used for pricing, reserving, and capital; examples include CSO tables in the US market.

- Pricing moved from 2001 CSO to 2017 CSO tables. - Experience suggested using a select and ultimate mortality structure. - Mortality improvement assumptions reduce reserves under some bases.

Net Amount at Risk (NAR)

The difference between the policy’s death benefit and its account or cash value. It represents the insurer’s mortality exposure and is the basis for certain charges and reinsurance.

- Reinsurance premiums are charged on the NAR. - As cash value grows, NAR declines under an Option A death benefit. - NAR drives monthly COI charges in UL.

Nonforfeiture Options

Contractual rights that allow a policyowner to retain some value if premiums stop, typically via cash surrender, reduced paid-up insurance, or extended term insurance.

- After premium cessation, the policy can go to extended term under nonforfeiture. - Statutes require minimum nonforfeiture values for permanent policies. - Reduced paid-up was selected to keep lifetime coverage.

Participating Policy

A policy eligible to receive dividends from insurer surplus. Common in mutual companies and certain whole life products; dividends depend on mortality, investment, and expense experience.

- Participating whole life offers potential dividends based on experience. - The dividend option was set to paid-up additions. - We disclosed that dividends are not guaranteed.

Persistency

The proportion of policies remaining in force over time, typically the complement of lapse. High persistency generally enhances profitability and EV.

- We implemented retention campaigns to boost persistency. - Commission structures were redesigned to align with long-term persistency goals. - Persistency improved after billing mode changes.

Policy Loan

A loan to the policyowner secured by the policy’s cash value, accruing interest and reducing death benefit if not repaid. May have tax implications upon surrender or lapse.

- The owner took a policy loan to pay college tuition. - Unpaid loan interest can cause a policy to lapse. - Direct recognition affects dividends on loaned values.

Principle-Based Reserving (PBR)

A valuation framework that sets reserves using company-specific risk modeling, assumptions, and prescribed stochastic scenarios instead of fixed formulae, implemented under NAIC VM-20 in the US.

- VM-20 requires PBR for term and universal life. - The PBR model uses company-specific mortality, lapse, and scenario testing. - PBR reduced reserves relative to formulaic AXXX for this block.

Reinsurance

The transfer of risk from a primary insurer to a reinsurer through arrangements like yearly renewable term (YRT), coinsurance, or facultative treaties to manage capacity, earnings, and capital.

- We ceded above our retention via YRT reinsurance. - The facultative case required reinsurer approval due to high face amount. - Reinsurance lowered RBC requirements and smoothed earnings.

Reserves (Statutory Reserves)

Liabilities recorded to meet future policy obligations under regulatory rules. Include policy reserves (valuation), claim reserves, and annuity reserves; calculated conservatively under SAP and PBR.

- Statutory reserves increased due to lower interest rate assumptions. - We reconciled PBR reserves to the actuarial opinion. - Claim reserves were strengthened for reported but unpaid claims.

Riders

Optional policy provisions that modify or enhance coverage, such as waiver of premium, accidental death, term riders, children’s riders, or long-term care riders.

- The client added waiver of premium and a term rider. - Riders can customize coverage for specific needs like ADB or child term. - Charges apply for most riders and may affect underwriting class.

Risk-Based Capital (RBC)

A regulatory capital framework that sets required capital based on quantified risks (e.g., asset, insurance, interest rate, business risk). US RBC uses C-0/C-1/C-2/C-3/C-4 components.

- The company’s RBC ratio remained above 400 percent. - Equity market volatility pressured C-1 capital charges. - Reinsurance lowered required RBC for mortality risk.

Section 1035 Exchange

A US tax code provision allowing a tax-free exchange of one life or annuity contract for another of like kind, preserving cost basis and deferring gains when structured properly.

- We executed a 1035 exchange from a WL policy to a new UL contract. - The advisor documented that the 1035 was in the client’s best interest. - A 1035 from life to an annuity is allowed; reverse is not.

Solvency II

The European Union’s risk-based regulatory regime for insurers, featuring market-consistent valuation, solvency capital requirements (SCR), minimum capital requirements (MCR), and governance and disclosure pillars.

- The group’s Solvency II SCR coverage ratio improved to 180 percent. - Market-consistent valuation under Solvency II increased liability sensitivity. - ORSA is part of Pillar 2 governance requirements.

Statutory Accounting Principles (SAP)

The conservative, rule-based accounting framework used for US regulatory reporting by insurers, emphasizing solvency and policyholder protection over earnings smoothing.

- Under SAP, we recognize reserves more conservatively than under GAAP. - SAP limits certain deferred tax assets in capital calculations. - The annual statement follows NAIC SAP guidance.

Surrender Charge

A fee assessed upon early policy surrender or withdrawal to recover acquisition and initial costs, typically declining over a fixed schedule.

- The surrender charge declines from 10 percent to zero over 10 years. - Early surrender may trigger both a surrender charge and a taxable gain. - We disclosed surrender charges in the illustration and delivery receipt.

Term Life Insurance

Coverage for a specified period with no cash value, providing a death benefit only. Variants include level term, decreasing term, and annual renewable term, often with conversion privileges.

- He bought 20-year level term to protect income during working years. - The term policy is convertible to permanent coverage. - Annual renewable term rates increase each year.

Underwriting

The process of evaluating and classifying risk to decide on acceptance and pricing, using medical, financial, and lifestyle information. Can be traditional, accelerated, or automated.

- The case was approved Preferred Non-Tobacco after underwriting review. - We use predictive models to triage underwriting requirements. - Underwriting tightened to address adverse mortality trends.

Universal Life (UL)

Flexible-premium permanent life insurance with an account value credited with interest and reduced by policy charges. Offers adjustable premiums, death benefit options, and potential no-lapse guarantees.

- Funding shortfalls may require increased premiums to keep UL in force. - Option B provides an increasing death benefit equal to face plus cash value. - No-lapse guarantees help stabilize UL coverage.

Variable Universal Life (VUL)

A form of universal life where account values are invested in separate accounts with market exposure. Policyholders bear investment risk; features include flexibility plus optional riders.

- VUL separate accounts are invested in equity and bond subaccounts. - As a security, VUL requires a prospectus and Series 6 or 7 license. - Market declines can necessitate higher premiums to avoid lapse.

Whole Life Insurance

Permanent life insurance with guaranteed premiums, death benefit, and cash value growth according to a fixed schedule; may be participating with potential dividends.

- Whole life provides guaranteed cash value accumulation and level premiums. - Participating whole life may pay dividends used for paid-up additions. - The client wants lifetime coverage, so we recommended whole life.