E&O insurance

See errors and omissions insurance.

early retirement

The election by an eligible participant in a pension plan, to begin receiving plan benefits before the normal retirement age, subject to minimum age and service requirements and subject to a reduced pension income benefit.

early-warning financial ratio tests

A set of financial ratios that Canadian regulatory examiners use to analyze an insurer’s financial statements and to create a customized examination plan that is designed to focus the on-site regulatory examination on the risks identified from the insurer’s financial information.

earmarked surplus

See special surplus.

earnings

(1) Profits that are made through either labor or increases in the value of investments. (2) For an annuity, the amount that an annuity has increased in value above the purchase price.

earnings first rule

See interest first rule.

ECCF

See extended congregate care facility.

EDI

See electronic data interchange.

effective interest rate

Interest rate or rate of return that includes the effects of compounding. Also known as the annual percentage rate (APR). Contrast with nominal interest rate. See also interest rate.

effective yield

See effective rate of return.

EFT

See electronic funds transfer.

election period

For the purposes of the Consolidated Omnibus Budget Reconciliation Act (COBRA) in the United States, a specified period following a qualifying event during which a qualified beneficiary has the right to elect COBRA continuation health coverage. See also Consolidated Omnibus Budget Reconciliation Act (COBRA), qualified beneficiaries, and qualifying events.

electronic application submission

Insurance and annuity application process in which the sales agent or applicant enters the application information into a computer and the information is then transmitted over a data network directly to the insurer.

electronic data interchange (EDI)

A computer-to-computer information exchange that uses a more uniform format than is used for much remote computing. EDI is neither company-specific nor company-owned, but is a public standard for electronic movement of data.

electronic funds transfer (EFT)

A method of transferring funds between financial intermediaries through an electronic computer network.

eligibility period

In contributory group insurance plans, a specified time, usually 31 days, during which a new group member who is eligible for group insurance coverage may first enroll for that coverage, usually without having to provide evidence of insurability. Also known as enrollment period.

eligibility requirements

The conditions a person must satisfy in order to be a participant in a group life insurance, group health insurance, or group retirement plan. See also service requirement.

eligible employee

(1) Any employee of a sponsoring organization that satisfies certain qualifications for participation in the company’s group life insurance, group health insurance, or group retirement plan. (2) According to the U.S. federal Family and Medical Leave Act, an employee who has been employed by a covered employer for at least 12 months and who has worked at least 1,250 hours during the 12 months preceding the start of a leave.

eligible individual

For purposes of the Health Insurance Portability and Accountability Act (HIPAA) in the United States, an individual to whom an insurer must provide individual health insurance coverage because the individual has had group health insurance coverage that meets specified requirements.

elimination period

(1) Under a disability income policy, the specific amount of time an insured must be disabled before becoming eligible to receive policy benefits. In a residual disability income policy, often referred to as a qualification period. (2) Under a long-term care policy, the number of days after long-term care begins that an insured must wait before benefit payments begin. Also known as waiting period.

employee benefits

The programs and services an employer offers to an employee in addition to regular monetary payments for work performed.

employee census

In group insurance, an attachment to a Request for Proposal that lists demographic information about the proposed group as a unit and about individual members within the group. See also Request for Proposal.

employee class

In group insurance, a group of employees categorized by position, earnings, or rank.

Employee Retirement Income Security Act (ERISA)

A U.S. federal law that regulates both employee welfare benefit plans, including group life and health insurance plans established by employers, and employer-sponsored retirement plans. ERISA requires that such plans be established and maintained in accordance with a written plan document, follow a variety of disclosure and reporting requirements, and include certain minimum plan requirements. See also welfare benefit plan.

employees’ profit sharing plan (EPSP)

In Canada, an employer-sponsored nonregistered retirement savings plan to which the employer and employees contribute.

employee stock ownership plan (ESOP)

A type of incentive compensation plan under which a company rewards individual or group performance by either allowing employees to purchase company stock or distributing company stock to employees.

employer-employee group

A type of group that generally is eligible for group insurance and that consists of the employees of a particular employer or the employees in any designated class of employees.

employment standards legislation

In Canada, legislation that mandates certain employment standards relating to such issues as minimum wage rates, overtime pay, and maximum hours of work.

endorsement

See policy rider.

endorsement method

(1) A method of transferring ownership of a life insurance policy under which the ownership change becomes effective once the policyowner notifies the insurer, in writing, of the change and the insurer records the change in its records.
(2) A rarely used method of changing a life insurance policy beneficiary designation which requires the name of the new beneficiary to be added to the policy in order for the change to be effective. Contrast with recording method.

endowment insurance

Life insurance that provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.

enrollment

In group insurance, the procedures by which an eligible group member signs up for insurance coverage. In employer-employee groups, for example, new employees generally may enroll for group insurance when they are hired.

enrollment application

See enrollment card.

enrollment card

In group insurance, a form completed by each employee eligible for a group insurance plan that provides the employee’s personal data, and includes a statement that the employee signs to indicate that she understands the coverage offered and agrees to have her portion of the premium deducted from her salary. Also known as enrollment application.

enrollment period

See eligibility period.

entire contract provision

A provision included in life insurance, health insurance, and annuity policies that defines which documents constitute the contract between the insurer and the policyowner. A typical provision might specify that the entire contract consists of the policy itself, the application if it is attached to the contract, and any attached riders.

entity accounting concept

An accounting principle stating that a company must account separately for the business activities of each basic business or economic unit.

entity method

A method of carrying out a partnership buy-sell agreement under which the partnership agrees to purchase the share of any partner who dies and to distribute a proportionate share of that ownership interest to each of the surviving partners. Contrast with cross-purchase method.

EOB

See explanation of benefits.

EPSP

See employees’ profit sharing plan.

Equal Credit Opportunity Act

A U.S. federal consumer protection law that prohibits discrimination in the granting of credit on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. Creditors must provide applicants for credit, upon request, with the reasons for the denial of credit.

equity assets

Assets that represent an investor’s ownership or share of ownership in an asset such as a business or property.

equity-indexed annuity

A type of annuity that offers the same type of minimum interest rate guarantees as a traditional fixed annuity, but also may credit additional interest depending upon the performance of an external standard, typically the stock market.

ERISA

See Employee Retirement Income Security Act.

errors and omissions (E&O) insurance

Insurance that protects a sales agent against financial liability for any negligent acts or mistakes.

escape clause

See bailout provision.

escrow account

A trust account used to pay property maintenance expenses, property taxes, and other expenses related to a mortgaged property.

ESOP

See employee stock ownership plan.

estate planning

A type of planning to help a client conserve, as much as possible, the personal assets that the individual wants to pass on to her heirs at her death.

ETS

See Examination Tracking System.

evergreening

A term that annuity insurers use to describe the annual delivery of an updated prospectus to variable annuity contract owners.

evidence of insurability

The proof that an insurance underwriter requires during the underwriting process in order to determine that a proposed applicant meets the insurer’s health and lifestyle requirements and is an insurable risk.

evidence of insurability provision

A provision in group life and health insurance policies specifying the conditions, if any, under which the insurer reserves the right to require a person eligible for insurance to furnish evidence of insurability as a condition to all or part of her coverage.

examination report

For on-site National Association of Insurance Commissioners (NAIC) regulatory examinations in the United States, a document that summarizes the examination results and notes any adverse conditions or significant changes in an insurer’s operations or financial condition. This report is submitted to both state regulators and the insurer’s officers.
See also financial condition examination, market conduct examination, and on-site regulatory examination.

Examination Tracking System (ETS)

An electronic system developed by the National Association of Insurance Commissioners (NAIC) that enables the states to schedule and coordinate market conduct examinations, as well as financial examinations.

examiner

In the United States, a representative of a state insurance department who participates in market conduct and/or financial condition examinations by visiting insurers’ home offices or regional offices and reviewing the insurers’ business records.

examining physician

A physician who performs an examination of a proposed insured at the request of an insurance company to provide information for the underwriting process. Contrast with attending physician.

exception

See exclusion.

excess-of-loss reinsurance

A type of nonproportional reinsurance in which a reinsurer is responsible for paying the amount of a claim above a predetermined limit.

excess of retention arrangement

A method of ceding proportional reinsurance in which the ceding company establishes a dollar-amount retention limit, and the reinsurer agrees to assume amounts over the insurer’s retention limit, up to the reinsurer’s automatic binding limit. See also automatic binding limit and retention limit.

excess quota share arrangement

A method of ceding proportional reinsurance in which the ceding company keeps its full retention limit and cedes the remaining risk to two or more assuming companies on a percentage basis. See also retention limit.

exclusion

An insurance policy provision that describes circumstances under which the insurer will not pay policy benefits that otherwise would be payable. For example, self-inflicted injuries are often excluded from coverage under health insurance policies. See also limitation.

exclusionary period

For purposes of the Health Insurance Portability and Accountability Act (HIPAA) in the United States, a specified maximum period following the date an individual enrolls in a group health plan during which a preexisting condition may be excluded from coverage.

exclusion ratio

For annuities, a formula used to calculate the portion of annuity benefit payments that are excluded from the recipient’s taxable income; calculated by dividing the total amount invested in the contract by the total amount expected to be returned from the contract.

exclusion rider

An amendment to an insurance policy that limits the policy’s benefits by excluding from coverage certain types of risk. For example, an aviation exclusion rider might exclude from coverage a death resulting from an aviation accident.

exclusive agent

See captive agent.

exculpatory statutes

In the United States, state laws that permit an insurer to pay life insurance proceeds according to the terms of a policy without fear of double liability. Also known as exoneration statutes.

ex-dividend date

The date that determines whether a stockholder is eligible to receive a declared cash dividend.

exhibits

See schedules.

exoneration statutes

See exculpatory statutes.

expected claim experience

For a particular group insurance plan, the dollar amount of claims that the insurer estimates the group will submit.

expected mortality

The number or rate of deaths that have been predicted to occur in a group of people at a given age according to a mortality table. Also known as tabular mortality. Contrast with mortality experience.

expense

An amount of assets a company either (1) spends to obtain a benefit or service or (2) allocates to provide for required reserves. Also known as cost. See also operating expenses.

expense budget

A schedule of expenses expected during an accounting period.

expense charge

When pricing insurance products, the portion of the product’s pricing structure that is designed to reimburse the insurer for its operating expenses—specifically commissions, premium taxes, and general operating expenses.

expense margin

When pricing insurance products, the difference between the amount needed to cover expenses and the expense level the insurer uses to price a product.

expense participation feature

See coinsurance.

experience rating

A method of calculating group insurance premium rates by which the insurer considers the particular group’s prior claims and expense experience. See also manual rating and pooling.

experience refund

For a particular group insurance plan, the portion of a group insurance premium that is returned to a group policyholder whose claim experience is better than had been anticipated when the premium was calculated. Also known as dividend.

explanation of benefits (EOB)

A detailed statement sent to an insured that shows each treatment or medication submitted as part of a health insurance claim, an insurer’s decision concerning payment of each charge, any amount that is considered as a deductible or a copayment, an explanation of any charge for which part or all of the charge will not be paid, and the total amount sent to a health care provider.

extended congregate care facility (ECCF)

For purposes of long-term care insurance, a type of assisted living facility that offers more extensive custodial care than an adult congregate living facility, but less than that of a nursing home. See also adult congregate living facility and nursing home.

extended spouse’s allowance

In Canada, the Old Age Security (OAS) benefit payable to a per­son who has been receiving a spouse’s allowance and whose spouse dies. The benefit is payable until the recipient reaches age 65 or remarries. See also Old Age Security (OAS) Act.

extended term insurance option

One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with a cash value to discontinue premium payments and to use the policy’s net cash value to purchase term insurance for the full coverage amount provided under the original policy for as long a term as the net cash value can provide. See also nonforfeiture options.

extended-time reinsurance

A type of nonproportional reinsurance in which the reinsurer takes over paying benefits after the ceding company has paid benefits for a certain amount of time.

external audit

An examination and evaluation of any company’s records and procedures conducted by an accounting firm not associated with the organization. Also known as independent audit. Contrast with internal audit. (1) For an insurance company, an external audit includes an evaluation of the company’s financial statements; the issuance of an opinion as to whether those financial statements present fairly the company’s operations through adherence to GAAP, statutory accounting, or other accounting principles; and a recommendation of changes to the company’s system of internal control. (2) In reinsurance, an external audit includes an on-site inspection of the procedures, controls, and records of a party to a reinsurance treaty. Also known as due-diligence review.

external customer

Any person or business who has purchased or is using a company’s products or is in a position to buy or use the company’s products. Contrast with internal customer.

external replacement

See replacement.

extra-contract damages

In a lawsuit brought against an insurance company, money awards to the plaintiff that exceed the amount of the insurance policy benefits and which are compensatory or punitive in nature. See also compensatory damages and punitive damages.

extra-percentage table

A method insurers use to develop premium charges for substandard risks, wherein each substandard class is charged a higher than usual premium rate that reflects a multiple of the insurer’s mortality rates for standard risks.

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.