LOMA Glossary

The LOMA Glossary of Insurance and Financial Services Terms

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backdating. A practice by which an insurer makes the effective date of an insurance policy earlier than the date of the application.

back-end load. (1) A fee a mutual fund charges when an investor sells shares. Also known as a deferred sales charge. (2) An amount charged to an insurance or annuity contract owner when she withdraws money from the product. Also known as a surrender charge, and for variable annuities, a contingent deferred sales charge. Contrast with front-end load.

bailout provision. In a fixed annuity contract, a provision that enables the contract owner to surrender the annuity contract, usually without surrender charges, if the current interest rate falls below a stated level—typically 1 percentage point below the initial current interest rate. Also known as an escape clause or cash-out provision.

balance sheet. A financial document that lists the values of a company’s assets, liabilities, and capital and surplus as of a specific date. See asset, liability, capital, and surplus. Also known as a statement of financial position or a statement of financial condition. See also basic accounting equation. Contrast with income statement.

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. Outside of the United States, a term used to describe the distribution of insurance products to bank customers through a bank-affiliated insurer. In the United States, known as bank distributed insurance.

banding. A method of providing quantity discounts in which a company creates a number of contiguous bands based on the face amount of a policy and charges different premium rates for each band.

bank distributed insurance. See bancassurance.

bargaining contract. A contract created when both parties, as equals, set the terms and conditions of the contract. Contrast with contract of adhesion.

basic accounting equation. An equation which states that a company’s assets equal the sum of its liabilities and its owners' equity (capital and surplus); forms the basis of a balance sheet. Also known as balance sheet equation. See also balance sheet, assets, liabilities, capital, and surplus.

basic illustration. A spreadsheet, ledger, or proposal that is used in the sale of a life insurance policy and that shows both guaranteed and nonguaranteed policy values. Contrast with supplemental illustration.

basic medical expense coverage. Medical expense insurance coverage providing separate benefits for each type of covered medical care cost. Basic coverage typically provides benefits for hospital, surgical, and physicians' expenses.

basic mortality table. A type of mortality table that has no margin built into the rates, is used for technical product design, and provides realistic mortality rates so that an insurer can best estimate future mortality costs. Contrast with valuation mortality table.

basis point (bp). An increment of one-hundredth of a percent (0.01 percent). Thus, 100 basis points equals one percent. 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 spread.

benchmark. A performance standard, often based on standards achieved by leading companies, that represents a company’s goals for performance.

benchmarking. A process by which a company compares its own performance, products, or services with those of other organizations that are recognized as the best in a particular category in order to identify areas for organizational improvement.

beneficiary. For an insurance policy, the person or party that the owner of an individual policy or the group insured names to receive the policy benefit. See also primary beneficiary, contingent beneficiary, revocable beneficiary, irrevocable beneficiary, concurrent beneficiary, preference beneficiary.

benefit base. The amount to which a variable life insurance policy’s net investment return will be applied periodically.

benefit period. The time during which an insurer agrees to pay benefits to an insured under a disability income or long-term care insurance policy.

benefit schedule. A table or schedule that specifies the amount of coverage provided for each class of group insureds by a group insurance policy.

benefit transmittal. In group insurance, an attachment to a request for proposal (RFP) that provides details about the insurance benefits being requested, the effective date of coverage, how premium billing and claims will be administered, and other information about the requested group insurance plan.

benefit trigger. A long-term care insurance policy requirement specifying the conditions that establish an insured’s eligibility to receive long-term care benefits.

benefit unit. The specific amount of coverage specified in a premium rate.

benefit waiting period. See elimination period.

benefits budget. A type of expense budget, which indicates the amount of money an insurer expects to pay for insurance policy or annuity contract benefits, such as claims, cash surrenders, and policy dividends during the next accounting period.

BGA. See brokerage general agent.

bilateral contract. A contract in which both parties make legally enforceable promises when they enter into the contract. In an insurance contract, only one party—the insurer—makes a legally enforceable promise. Contrast with unilateral contract.

binding premium receipt. A premium receipt that provides temporary insurance coverage that becomes effective on the date specified in the receipt. The temporary insurance coverage ends at the earlier of (1) the date specified in the receipt, (2) when the insurer rejects the application, or (3) when the insurer approves the application. Contrast with conditional premium receipt. See also temporary insurance agreement.

blended rating. A method of calculating group insurance premium rates that combines manual rating and experience rating. Contrast with manual rating and experience rating.

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 group of laboratory tests that analyze a sample of blood to identify factors that point to possible chronic and acute diseases.

board of directors. A group of individuals who are responsible for overseeing the management of a corporation; the top level of management.

bond. A security that represents a debt that a borrower (the issuer of the bond) owes to the bondholder (the person or company that buys the bond). Bonds are typically the largest investment holdings in the general accounts of insurance companies. See also debt security.

bond fund. A mutual fund whose assets are invested primarily in bonds.

bond issuer. The entity that sells a bond to raise money.

bond ladder. An investment strategy that involves purchasing a series of bonds whose maturity dates are staggered to produce a steady stream of potential cash.

bond principal. See par value.

bond rating. A letter grade that a bond rating agency assigns to indicate the quality of a bond issue.

bond subaccount. A subaccount in an insurance company’s separate account that consists of a variety of both short-term and long-term government and corporate bonds.

bondholder. The owner of a bond.

bonus annuity. A variable annuity under which the insurer credits a stated amount to the initial purchase payment or subsequent purchase payments as an incentive for the customer to purchase the contract.

book value. The value at which an asset is recorded in a company’s accounting records. Contrast with current market value.

bordereau service. A direct writer’s action of providing a reinsurer with a list of total reinsurance premiums and other information.

bottom-up budgeting. A budgeting approach that starts at the bottom of a company, with lower-level managers generating budgets for their areas, which are then presented in the form of recommendations to senior management. Contrast with top-down budgeting, zero-based budgeting.

bp. See basis point.

breakeven analysis. See cost-volume-profit analysis.

breakeven point. The point at which product revenues equal product costs, marking the end of the breakeven period. Also known as the validation point.

broker. In insurance sales, an independent agent who does not have an exclusive contract with any single insurer or specific obligations to sell a single insurer’s products. Also known as an agent-broker or insurance broker.

brokerage general agency arrangement. An arrangement to distribute nonproprietary products in which an insurance company enters into an agreement to allow its affiliated agents to sell products offered through an independent general agent, known as a brokerage general agent.

brokerage general agent (BGA). An independent general agent who is under contract to a number of insurers.

broker-dealer. A financial institution that buys and sells securities either for itself or for its customers and provides information and advice to customers regarding the purchase and sale of securities.

B-share annuity. A variable annuity with a back-end load that reduces gradually over a six, seven, or eight-year period. Contrast with A-share annuity, C-share annuity, L-share annuity.

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

build chart. A chart that indicates average weights for various heights, along with the mortality debits associated with increases in weight.

bulk administration. A method of reinsurance administration in which the direct writer 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.

business continuance plan. A plan that provides arrangements and systematic procedures to be followed in case of weather emergencies (such as floods or ice storms), computer systems failures, power or network outages, power spikes, cable cuts, fires, or similar events that would prevent or hamper normal business operations. Also known as a contingency plan or a disaster recovery plan.

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 another key person dies. See also partnership insurance.

business credit risk. See counterparty risk.

business finance company. See commercial finance company.

business income insurance. A type of property insurance that covers losses resulting from the suspension of business operations, including loss of net income, expenses that continue during suspension of business operations, and extra expenses incurred to avoid or minimize business interruption.

business insurance. Insurance that serves the needs of a business organization rather than those of a person.

business market. See organizational market.

business overhead expense coverage. A disability coverage option that provides benefits designed to pay a disabled insured’s share of a business’s overhead expenses.

business risk. The risk that changes in a company’s external environment will affect its operations. Also known as marketplace risk.

businessowners policy. A package commercial property and liability insurance policy that is available to certain small- to medium-sized businesses and covers commercial real property, personal property, and liability.

Buyer's Guide. See Life Insurance Buyer's Guide.

buy-sell agreement. An agreement in which (1) 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. See also cross-purchase agreement, entity agreement.

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