backdating

A practice by which an insurer makes the effective date of a life insurance policy earlier than the date of the application for the policy so that the premium rate will be lower. Also known as dating back.

back-end load

A surrender charge. For mutual funds or variable annuities, a sales charge that the share owner or contract owner pays upon withdrawing funds from the arrangement. Also known as contingent deferred sales charge. Contrast with front-end load and no-load fund.

back-loaded policy

A life insurance policy or a deferred annuity contract in which most of the expense charges occur when the policy owner or contract owner surrenders the policy or makes cash withdrawals from the policy. Contrast with front-loaded policy.

bailout provision

An annuity contract provision that enables the contract owner to surrender the annuity contract, usually without a surrender charge, if renewal interest rates on a fixed annuity fall below a pre-established level, typically 1 percent below the initial interest rate. Also known as escape clause and cash-out provision.

balance sheet

A financial statement that shows a company’s financial condition or position as of a specified date; summarizes what a company owns (assets), what it owes (liabilities), and its owners’ investment in the company (owners’ equity) on a specified date. Also known as statement of financial position.

balance sheet equation

See basic accounting equation.

balanced mutual fund

A mutual fund that has the objective of preservation of capital with moderate income and growth in value.

bancassurance company

See bank insurance company.

bank insurance

Insurance coverage that is manufactured and underwritten by a commercial bank’s own insurance company and distributed through the bank’s distribution channels.

bank insurance company

A company that offers both banking and insurance services. Also known as bancassurance company.

bank line

See line of credit.

bank reconciliation

The process of identifying and explaining the difference between the balance presented on a bank statement and the balance in the accounting records of an individual or a company. Insurers sometimes refer to this process as the book balance.

bank-sold insurance

A type of location-selling insurance distribution system in which insurance is distributed by a bank and manufactured and underwritten by an insurance company.

base period

The earliest financial reporting period used in horizontal analysis. See also horizontal analysis.

basic accounting equation

The formula that expresses the relationship among the three key account classifications—assets, liabilities, and owners’ equity—on the balance sheet. Also known as balance sheet equation.

basic health care services

According to the National Association of Insurance Commissioners (NAIC) Health Maintenance Organizations (HMO) Model Act, specified medically necessary services that HMOs must provide to enrollees, such as preventive care, emergency care, inpatient and outpatient hospital care, diagnostic laboratory services, and diagnostic and therapeutic radiological services.

basic illustration

A spreadsheet, a ledger, or a proposal used in the sale of life insurance that falls under the scope of the National Association of Insurance Commissioners (NAIC) Life Insurance Illustrations Model Regulation and that shows both guaranteed and nonguaranteed elements of the policy. See also illustration.

basic mortality table

A mortality table that has no safety margin built into the mortality rates and that is used for the technical design of life insurance and annuity products. Contrast with select mortality table and ultimate mortality table.

basis point (bp)

An increment of one-hundredth of a percent (0.01 percent); e.g., half a percent is equal to 50 bp, and one and a half percent is equal to 150 bp. Insurers often use this unit of measurement in calculating interest margins for insurance products with a significant investment component. See also interest margin.

bed reservation benefit

A long-term care (LTC) policy benefit that pays an amount to reserve a bed in a nursing home or other LTC facility while the insured person is hospitalized for treatment.

before-tax dollars

Money that has not been taxed.

benchmarking

The process by which a company compares its own performance, products, and services with those of other organizations that are recognized as the best in a particular category. The product or service that is determined to be the industry standard is known as a benchmark.

beneficiary

The person or legal entity the owner of an insurance policy names to receive the policy benefit if the event insured against occurs. See also annuity beneficiary, contingent beneficiary, and irrevocable beneficiary.

beneficiary for value

According to laws that are no longer in force in the common law jurisdictions of Canada, a life insurance policy beneficiary who has vested rights to policy proceeds because the beneficiary provided the policyowner with valuable consideration. Although the law no longer exists, some of these beneficiary designations continue to remain in effect in older policies.

benefit

1) For an insurance contract, the amount of money that is paid as compensation when the loss insured against occurs.
(2) For an annuity contract, the periodic payments made as specified in the contract.

benefit expenses

For insurers, the cost of paying contractual obligations to customers. Also known as expense for contractual benefits and benefit costs. Contrast with operating expenses.

benefit formula

For pension plans, a statement that describes a pension plan sponsor’s financial obligation to plan participants.

benefit period

The specified time during which benefits will be paid under certain types of health insurance coverages. (1) For disability income coverage, the length of time during which disability income benefits are paid, typically lasting from less than a year to age 65 or 70. (2) For long-term care coverage, the number of days, months, or years during which a LTC policy will pay a daily benefit amount.

benefits budget

A type of budget indicating the amount of money an insurer expects to pay for claims, cash surrenders, and policy dividends during the next accounting period.

benefit schedule

See schedule of benefits.

benefits survey

A report that contains information on the benefits being offered to employees in a specified geographic area or industry.

benefit transmittal

document compiled by a prospective group insurance policyholder for a group insurer that provides details concerning the insurance benefits being requested for each employee class, the effective date of coverage, how premium billing and claims will be administered, and other information concerning the type of plan being requested.

benefit unit

See unit of coverage.

bilateral contract

A contract between two parties who both make legally enforceable promises when they enter into the contract. Contrast with unilateral contract.

binding limit

See automatic binding limit.

binding premium receipt

See temporary insurance agreement.

blended rating

A process for calculating premium rates for group insurance that combines manual rating and experience rating; underwriters assign a credibility factor to the group’s experience and include that factor in the premium calculations. See also experience rating and manual rating.

block of business

In insurance, a large number of similar life insurance policies or annuity contracts.

block of policies

A group of policies issued to insureds who are all the same age, the same sex, and in the same risk classification.

blood chemistry profile

A laboratory test that identifies various aspects of possible chronic and acute diseases in a sample of blood. Underwriters commonly order this laboratory test as part of the risk selection process for life insurance and health insurance.

bond

A debt security whereby the bond issuer promises to pay the bondholder a stated rate of interest over a specified period of time, at the end of which time, the original amount of borrowed money must be repaid. The owner of the bond is known as the bondholder. The entity that sells the bond to raise money is known as the bond issuer.

bond principal

The sum the issuer of a bond borrows from the bond’s initial purchaser. This amount which is stated on the face of the bond is payable by the issuer of the bond on or before the bond’s maturity date. Also known as bond’s face value, maturity value, and par value.

bond rating

A letter grade assigned by a bond rating agency that indicates the credit quality of a bond issue.

bond subaccount

One of the three main asset classes in an insurance company’s separate account within which owners of variable insurance contracts can deposit funds and have the funds invested in a variety of both short-term and long-term government and corporate bonds. See also money market subaccount and stock subaccount.

bonus additions

In Canada, additional amounts of paid-up life insurance or one-year term life insurance acquired through a life insurance policyowner’s dividend payout option.

book balance

See bank reconciliation.

book value

The value at which an asset is recorded in a company’s accounting records.

bordereau

In reinsurance, a regular report that is exchanged between a ceding company and a reinsurer.

bottom-up budgeti

A budget-setting approach for business organizations that requires lower-level managers to prepare their own departmental budgets for approval by upper-level managers.

boycott

An agreement among competing companies to refrain from doing business with another company.

bp

See basis point.

branch manager

In the insurance industry, the person who heads a field office of an insurance company that uses the branch office distribution system. This individual recruits, selects, and trains career agents, and acts as the sales manager for the geographic area covered by the sales office. Also known as general manager.

branch office distribution system

A type of ordinary agency insurance distribution system wherein companies establish and maintain field offices in key areas throughout a marketing territory that are headed by a branch manager. See also branch manager and ordinary agency distribution system.

breakeven analysis

See cost-volume-profit (CVP) analysis.

break-even period

See validation period.

break-even point

The point at which a product’s revenues are equal to its costs. See also validation point.

broker

(1) Any person or entity engaged in the business of buying or selling investment securities for the account of another. Contrast with dealer. (2) An insurance sales agent who sells insurance products for more than one insurance company. Contrast with captive agent.

brokerage distribution system

A type of nonagency building insurance distribution system that relies on the use of agent-brokers and brokers to sell and deliver insurance and annuity products. See also agent-broker, broker, and nonagency building distribution system.

broker-dealer

A person or firm that provides information or advice to customers regarding the sale and/or purchase of securities, serves as a financial intermediary between buyers and sellers of securities, and supervises the sales process to make sure that salespeople comply with all applicable regulations.

budget

A financial plan of action, expressed in monetary terms, which covers a specified time period, such as one year.

build chart

A chart that underwriters use to assess the degree of risk a proposed insured represents. The chart indicates average weights for various heights for each sex, along with the mortality debits associated with increases in weight.

bulk administration

A method of reinsurance administration in which the ceding company administers the reinsurance and periodically submits summarized reports on premiums and on the policies to the reinsurer, but does not provide individualized detailed information about risks reinsured until a claim needs to be processed.

bundled product structure

Insurance or annuity product design in which an insurer presents the product to customers as a package of benefits, provided in exchange for a given payment. The mortality, investment, and expense factors are not identified separately in the product. Contrast with unbundled product structure.

business continuation insurance plan

An insurance plan designed to enable a business owner (or owners) to provide for the business’ continued operation if the owner or a key person dies. See also partnership insurance.

business financial supplement

A specialized questionnaire used in underwriting business insurance that requests information about the type of business, the current financial condition of the business, and the purpose for which the insurance is being requested.

business overhead expense coverage

Disability coverage that provides benefits designed to pay a disabled insured’s share of a business’ overhead expenses.

Buyer’s Guide

A publication designed to educate consumers about life insurance or annuity products and enable them to get the most for their money when shopping for these products. In the United States, many states have enacted legislation that requires insurers to provide prospective buyers of certain insurance and annuity products with a Buyer’s Guide. See also Guide to Buying Life Insurance.

buy-sell agreement

An agreement in which one party agrees to purchase the financial interest that a second party has in a business following the second party’s death, and (2) the second party agrees to direct his estate to sell his interest in the business to the purchasing party.

LOMA's Glossary of Insurance and Financial Services Terms Copyright © 2002 LOMA (Life Office Management Association, Inc.). Used with permission from the publisher. All right reserved. Copying or downloading this information without permission from the publisher is a violation of federal and international law. For information on purchasing a copy of the Glossary or for additional information on LOMA and its educational programs, visit LOMA's Web site at www.loma.org. LOMA is a registered service mark of the Life Office Management Association, Inc.