LOMA Glossary

The LOMA Glossary of Insurance and Financial Services Terms

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C (contingency) risks. In the United States, four officially recognized categories of risk that the actuarial profession has identified as being able to cause financial distress for insurers. See also asset risk, pricing risk, interest-rate risk, and general management risk.

C1 risk. See asset risk.

C2 risk. See pricing risk.

C3 risk. See interest-rate risk.

C4 risk. See general management risk.

calendar-year deductible. In medical expense insurance, a deductible that applies to the total of all allowable expenses an insured incurs during a given calendar year.

call center. An organizational unit within a company that receives and/or places telephone calls to customers. See contact center.

call option. A type of derivative security that gives the holder the right to buy the underlying security at a specified price.

call provision. A bond provision that states the conditions under which the bond issuer has the right to require the bondholder to sell the bond back to the issuer at a date earlier than the maturity date.

callable bond. A bond that gives the bond issuer the right to call, or pay off, the bond before the bond’s maturity date.

Canada Pension Plan (CPP). A Canadian federal compulsory, contributory, earnings-related social insurance program that ensures a measure of protection to a contributing wage earner and his family against the loss of income due to retirement, disability and death.

Canadian Council of Insurance Regulators (CCIR). An organization that consists of provincial superintendents of insurance that discusses insurance issues and recommends uniform insurance legislation to the provinces; similar to the National Association of Insurance Commissioners (NAIC) in the United States.

cancellable policy. An individual health insurance policy that grants the insurer the right to terminate the policy at any time, for any reason, simply by notifying the policyowner that the policy is cancelled and refunding any advance premium that has been paid for the policy. See also conditionally renewable policy, guaranteed renewable policy, noncancellable policy, optionally renewable policy.

cap. See interest-rate cap.

capital. (1) An amount of money that a company’s owners invested in the company, usually through the purchase of company stock. (2) The excess of a company’s assets over its liabilities.

capital adequacy. The minimum amount of capital an insurer must hold to meet a specified standard for capital.

capital adequacy testing. See dynamic solvency testing.

capital and surplus. For insurers, the amount remaining after liabilities are subtracted from assets; owners’ equity in an insurance company. See also owners' equity, balance sheet, basic accounting equation.

capital and surplus ratio. A solvency ratio that describes the relationship between an insurer’s capital and surplus and its liabilities. A capital and surplus ratio is used to measure an insurer’s financial strength. Also known as a capital ratio.

capital appreciation. An increase in the value of invested assets.

capital budget. A budget that shows a company’s plans for the financial management of its long-term, high-cost investment proposals, such as new investments in equipment or real estate, major repairs to or remodeling of existing investments, acquisitions of other companies or lines of business, mandated safety and environmental improvements, expense reduction projects, purchases of new computer systems and equipment, and revenue expansion projects.

capital budgeting. The analysis of decisions about the investment of long-term funds.

capital gain. The amount by which the selling price of an investment is more than its purchase price. Contrast with capital loss.

capital loss. The amount by which the selling price of an investment is less than its purchase price. Contrast with capital gain.

capital market. See financial market.

capital ratio. See capital and surplus ratio.

captive agent. See career agent.

captive reinsurer. A reinsurer that is formed for the purpose of providing reinsurance by an insurance company or another type of company and that is controlled by that company.

career agent. An insurance sales agent who is under a full-time contract with one insurance company and sells primarily that company’s life insurance products. Also known as captive agent, exclusive agent. See also independent agent and multiple-line agent.

case assignment system. A method of assigning cases to underwriters based on the characteristics of the case.

case management. A process by which a health plan (1) identifies plan members who require extensive, complex health care, (2) develops an appropriate treatment strategy based on medical necessity and appropriateness and the availability of alternative care solutions, and (3) coordinates and monitors patient care.

cash accounting. See treasury operations.

cash dividend option. A life insurance policy dividend option under which the insurance company sends the policyowner a check in the amount of the policy dividend that was declared. See also policy dividend options.

cash equivalents. Short-term assets that are not cash, but can typically be converted to cash within 90 days with little or no risk of losing value.

cash flow. Any movement of cash into or out of an organization.

cash flow statement. A financial statement that provides information about a company’s cash receipts (inflows), cash disbursements (outflows), and the net change in cash (the difference between cash inflows and cash outflows) during a specified accounting period. Also known as a statement of cash flows.

cash flow testing (CFT). See cash-flow testing.

cash inflow. A movement of cash into an organization. Also known as a source of funds.

cash management. See treasury operations.

cash management products. Financial products that enable owners to manage available funds and use them to make purchases and pay bills, to store money for short periods of time, and to transfer funds from one account to another.

cash outflow. A movement of cash out of an organization. Also known as a use of funds.

cash payment nonforfeiture option. See cash surrender value nonforfeiture option.

cash surrender value. The amount of the cash value that a policyowner is entitled to receive upon surrender of the policy. Also known as the surrender value or surrender benefit. See also net cash surrender value. Contrast with face amount.

cash surrender value nonforfeiture option. A life insurance policy nonforfeiture option that permits a policyowner to discontinue premiums payments, surrender the policy, and receive the policy’s cash surrender value in a lump-sum payment. Also known as cash payment nonforfeiture option.

cash value. The savings element of a cash value life insurance policy. See also cash surrender value.

cash value accumulation test. For federal income tax purposes in the United States, one of the qualification tests a policy must meet to be considered a life insurance contract that provides a tax-free death benefit. A policy passes this test if, according to the contract terms, the amount of its cash surrender value is never greater than the amount of the net single premium needed to fund the policy death benefit.

cash value life insurance. Life insurance that provides insurance coverage throughout the insured’s lifetime and provides a savings element, known as the cash value. Sometimes referred to as permanent life insurance. Contrast with term life insurance.

cash-basis accounting. An accounting system in which a company recognizes revenues or expenses only when it receives or disburses cash. Contrast with accrual-basis accounting.

cash-flow matching. A technique that involves identifying the patterns of cash outflows for insurance products and matching those cash outflows with a selection of assets that will produce a similar pattern of cash inflows.

cash-flow testing (CFT). The use of simulation modeling to project into a future period the cash flows associated with an insurance company’s assets and liabilities as of a given valuation date and to compare the timing and amounts of assets and liability cash flows at various times after the valuation date.

cash-out provision. See bailout provision.

cat cover. See catastrophe coverage.

catastrophe coverage. A type of nonproportional reinsurance designed to partially protect direct writers from (1) a single catastrophic event resulting in multiple claims or (2) an annual total of claims in a catastrophic amount. The coverage usually is a backup for accident or casualty coverages. The coverage usually requires the reinsurer to pay claims on the direct writer’s total claims above a stated amount, subject to (1) a minimum number of qualified claims or minimum amount of claim benefits and (2) a maximum total reinsurance payout. Also known as cat cover.

catastrophic health insurance plan. See high deductible health plan.

CCIR. See Canadian Council of Insurance Regulators.

CD. See certificate of deposit.

CDS. See Complaints Database System.

CDSC. Contingent deferred sales charge. See back-end load.

cede. An insurance company’s transfer of all or part of a specified risk to a reinsurance company.

ceding commission. See allowance.

ceding company. See direct writer.

census. In group insurance, a document that lists demographic information about the group prospect as a unit and about individual members within the group.

certificate holder. See group insured.

certificate of authority. A document that grants an insurer the right to conduct an insurance business and sell insurance products in the jurisdiction that grants the certificate. Also known as a license.

certificate of deposit (CD). A contractual agreement issued by a bank or other depository institution such as a credit union that returns the owner’s principal with interest on a specified date.

certificate of insurance. A document that is provided to each person insured by a group insurance plan that describes (1) the coverage that the master group insurance contract provides and (2) the group insured’s rights under the contract.

cession. Both the unit of insurance risk that a direct writer transfers to a reinsurer and the document used to record the transfer of risk from a direct writer to a reinsurer

cession arrangement. An agreement that Identifies the direct writer’s obligations and rights to cede risks, and identifies the reinsurer’s obligations to accept risk as well as its rights to reject risk.

CFT. See cash-flow testing.

change in health statement. A document, contained in most individual life insurance applications and premium receipts, that requires a proposed insured to notify the insurer in writing if his health or any material information in the application changes before the policy is delivered.

change of beneficiary provision. A provision included in individual life insurance policies and health insurance policies providing a death benefit which states the procedure the policyowner should follow for making a beneficiary change. Typically, the provision states that, unless a policyowner makes an irrevocable beneficiary designation, the policyowner has the right to change a beneficiary designation and to surrender or assign the policy without the beneficiary’s consent.

change of occupation provision. A provision in individual disability income insurance policies that permits the insurer to adjust the policy’s premium rate or the amount of benefits payable under the policy if the insured changes occupation.

change of ownership provision. An individual life insurance policy provision that permits a policyowner to transfer all ownership rights by notifying the insurer, in writing, of the change. When the insurer records the ownership change in its records, the change generally becomes effective as of the date the policyowner signed the written notification.

children's insurance rider. A supplemental life insurance policy benefit that can be added to an individual life insurance policy to provide term life insurance coverage on the insured’s children.

chronic condition. An illness or disease that is expected to last a year or longer. A person certified by a licensed health care practitioner as having a chronic condition may, in certain circumstances, qualify for long-term care or disability income benefits.

churning. An unfair sales practice in which a producer induces a customer to replace one life insurance policy or annuity contract with another product, multiple times, so that the producer can earn a series of first-year commissions on the replacements.

CI benefit. critical illness benefit. See dread disease benefit.

claim. A request for payment under the terms of an insurance policy.

claim adjudication. See claim administration.

claim adjustor. See claim analyst.

claim administration. The insurance function that is responsible for evaluating, processing, and paying valid claims for contractual benefits that policyowners or beneficiaries present. Also known as claim adjudication, claim handling, claim processing, or claim servicing.

claim analyst. An insurance company employee who is trained to review individual claims and determine the company’s liability under each claim. Also known as a claim examiner, claim adjustor, or claim specialist.

claim examiner. See claim analyst.

claim form. A document containing information about a loss under an insurance policy that is submitted to an insurer to begin the claim evaluation process. Also known as a claimant’s statement.

claim fraud. An action by which a person intentionally uses false information in an unfair or unlawful attempt to collect benefits under an insurance policy or annuity contract.

claim handling. See claim administration.

claim investigation. The process of obtaining the additional information necessary to make an appropriate claim decision.

claim processing. See claim administration.

claim provision. A reinsurance agreement provision which states the terms and conditions of the reinsurer’s liability for claims submitted under reinsured policies.

claim servicing. See claim administration.

claim settlement. A lump-sum payment by an insurer to a claimant in exchange for the claimant’s agreement to release the insurer from further responsibility for coverage under the policy.

claim specialist. See claim analyst.

claimant. A beneficiary or policyowner who submits a policy claim to an insurance company.

claimant’s statement. See claim form.

claims bordereau. In some self-administered reinsurance arrangements, a report that includes information about the individual claims received and/or paid by the direct writer on reinsured policies and the reinsurer’s obligation under those claims. Also called a loss bordereau.

claims provision. A provision typically included in individual health insurance policies that defines an insured's obligation to provide timely notification of loss to the insurer and the insurer's obligation to make prompt benefit payments to the insured. Also known as notice of claim provision.

class designation. A life insurance beneficiary designation that identifies a certain group of people rather than naming each person individually. See also per stirpes beneficiary designation and per capita beneficiary designation.

cliff vesting schedule. For qualified retirement plans in the United States, a type of minimum vesting schedule that provides a participant with a nonforfeitable right to all employer-funded plan benefits or account values after a specified period—for example, after five years of full employment. Contrast with graded vesting schedule.

close notice. See drop notice.

closed contract. A contract for which only those terms and conditions that are printed in—or attached to—the contract are considered to be part of the contract. Contrast with open contract.

closed-end investment company. An investment company whose shares are traded on an organized stock exchange, like the New York Stock Exchange or the National Association of Securities Dealers Automated Quotation System (Nasdaq). Contrast with open-end investment company.

closing. (1) In insurance sales, the part of an insurance sales presentation that occurs when an agent secures a purchase commitment from a prospect by asking for and obtaining the prospect’s agreement to submit an application for the coverage recommended in the proposal. (2) Generally, the conclusion of a purchase transaction, usually accomplished by satisfaction of all conditions stated in the purchase contract.

CMBS. See commercial mortgage-backed security.

CMO. See collateralized mortgage obligation.

COB provision. See coordination of benefits provision.

COBRA. See Consolidated Omnibus Budget Reconciliation Act.

COBRA continuation coverage. In the United States, group medical expense insurance coverage that is continued under the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA) when an individual's employer-provided group health insurance has terminated because of certain qualifying events.

cognitive impairment. In long-term care (LTC) insurance underwriting, mental incapacity that prevents a person from performing activities of daily living (ADLs) or from living safely. See also activities of daily living.

cognitive screen. A test designed to determine a person’s powers of recollection or short-term memory that is often used to measure cognitive impairment in persons insured under long-term care (LTC) insurance.

cohort. A defined group of people.

coincident indicator. A statistical variable that tends to change about the same time that gross domestic product (GDP) changes. Contrast with leading indicator, lagging indicator. See also gross domestic product.

coinsurance. (1) A provision in a medical expense insurance policy requiring the insured to pay a percentage of all allowable expenses remaining after the insured pays the deductible. (2) A basic type of proportional reinsurance, suitable for life, annuity, health, disability income, and long-term care coverages, in which a direct writer and a reinsurer proportionately share the obligations of a policy, including paying the death benefit and the nonforfeiture values, and establishing the policy reserve.

coinsurance allowance. In a coinsurance arrangement, an allowance that the reinsurer provides to the direct writer to acknowledge expenses. The coinsurance allowance can be calculated as a specified proportionate share of the coinsurance gross premium.

coinsurance gross premium. In a coinsurance arrangement, the reinsurance gross premium including reinsurance allowances.

coinsurance net premium. In a coinsurance arrangement, the amount the direct writer must pay to the reinsurer after subtracting the coinsurance allowance from the reinsurance gross premium.

COLA benefit. See cost-of-living adjustment benefit.

cold calling. A sales process in which the seller telephones or visits prospects with whom the seller has had no prior contact. Also known as cold canvassing.

cold canvassing. See cold calling.

collateral. An asset that is pledged as security for a loan until the debt is paid.

collateral assignment. A temporary assignment of the monetary value of a life insurance policy as collateral—or security—for a loan. Contrast with absolute assignment.

collateralized mortgage obligation (CMO). A type of bond secured by a pool of residential mortgage loans.

collision insurance. Physical damage insurance that covers an insured for losses to his vehicle caused by a collision regardless of whether the insured was at fault.

combination roll-up/step-up benefit. An enhanced death benefit in a variable annuity that offers both a roll-up of principal and a lock on investment gains at each contract anniversary. Under this benefit, the death benefit payable is equal to the greatest of (1) the contract’s accumulated value at the time of the contract owner’s death, (2) the rolled-up principal amount, or (3) the stepped-up value at contract anniversary.

combined retention. See corporate retention limit.

commercial automobile insurance. A type of property insurance that comes in three forms: business automobile coverage, which is similar to personal automobile coverage; garage coverage, which covers businesses that sell, service, park, or store automobiles; and motor carrier coverage, which covers businesses that provide transportation of people, goods, or both, as specified in the policy.

commercial bank. A depository institution that accepts deposits from people, businesses, and government agencies and uses those deposits to make loans to people, businesses, and government agencies.

commercial finance company. A finance company that extends loans and leases equipment to businesses. Also known as a business finance company. Contrast with consumer finance company.

commercial liability insurance. A type of liability insurance that covers bodily injury and property damage liability, personal and advertising injury liability (such as defamation), and medical payments.

commercial mortgage. A loan secured by commercial real estate, such as shopping centers, office buildings, hospitals, factories, and retail stores.

commercial mortgage-backed security (CMBS). A securitized pool of commercial mortgages.

commercial paper. A financial instrument, consisting of short-term, unsecured promissory notes, a corporation issues to businesses or governments to obtain capital for short-term business needs. It is an alternative to short-term bank loans or other forms of borrowing.

commercial property insurance. A type of property insurance that covers buildings and personal property owned by a business and personal property of others in the care of the business.

commingling of funds. In insurance sales, the prohibited practice of combining monies belonging to others with a producer’s own funds, even on a temporary basis.

commission. In insurance sales, an amount of money, typically a percentage of the premiums paid, that an insurer pays to a producer for selling and servicing an insurance policy or annuity contract. Also known as sales commission. See also first-year commission, renewal commission.

committee underwriting. An underwriting approach in which a group of highly qualified people from inside and outside the underwriting function is called together for a case assessment. See also team underwriting.

common costs. See indirect costs.

common disaster clause. See survivorship clause.

common stock. A type of stock that usually entitles the owner to vote on the selection of board directors and on other important company matters and also entitles the owner to receive dividends on the stock, if they are declared. Contrast with preferred stock.

commutation right. In an annuity contract’s payout period, the owner’s option to withdraw a lump sum from the contract’s remaining principal and from any growth of the principal of a variable contract, even while the contract owner is receiving annuity payments.

commutative contract. A contract under which the parties specify in advance the values that they will exchange, and the parties generally exchange items or services that they think are of relatively equal value. Contrast with aleatory contract.

comorbidity. The simultaneous appearance of two or more unrelated illnesses or conditions that may act in conjunction with one another.

compensatory damages. In a lawsuit, monetary awards intended to compensate the injured party for the amount of the monetary losses that resulted from the defendant’s improper conduct. Also known as actual damages. Contrast with punitive damages.

competition laws. See antitrust laws.

competition risk. Any risk posed by direct competitors of a company, changes in an industry’s structure, or changes in an industry’s standards for the use of technology.

complaint examiner. In the United States, a state insurance department employee who is responsible for handling complaints received from consumers.

Complaints Database System (CDS). In the United States, an information system that is maintained by the National Association of Insurance Commissioners and that provides state insurance departments with access to reports and aggregated data about complaints that have been filed against insurance companies and individuals involved in the business of insurance.

compliance. (1) The actions taken by an organization to operate in accordance with all applicable laws and regulations. (2) The functional area within an insurance company responsible for ensuring that the company adheres to applicable laws and regulations in each jurisdiction in which it does business.

compliance audit. An audit that verifies that a company’s operations adhere to applicable laws and regulatory requirements and to the company’s policies and procedures.

compound interest. Interest earned on both the principal amount of money and the accumulated interest. Contrast with simple interest.

compounding. The process of determining a future value when compound interest is applied. Contrast with discounting.

compounding period. Each of the interest periods used in future value calculations. Contrast with discounting period.

comprehensive business analysis. In the product development process, the stage in which a company evaluates all the factors that are likely to affect the design, production, pricing, marketing, and sales potential of a new product.

comprehensive examination. See comprehensive market conduct examination.

comprehensive market conduct examination. In the United States, a full-scope examination of all nonfinancial aspects of an insurer’s operations conducted by a state insurance department. Also known as comprehensive examination. Contrast with target market conduct examination.

comprehensive personal liability insurance. Liability insurance that covers insureds from liability losses they incur that are not the result of practicing their profession or operating a vehicle.

comptroller. See controller.

concurrent beneficiary. Two or more life insurance beneficiaries who share the policy proceeds on the death of the insured; shares are distributed evenly unless otherwise provided.

concurrent control. An organizational control applied during a business process to monitor the process as it is being performed. Concurrent controls determine whether a process should proceed, requires corrective action, or must be stopped. Contrast with feedback control, steering control.

condition. See schedule.

conditional premium receipt. A premium receipt that specifies certain conditions that must be met before the temporary insurance coverage provided by the receipt becomes effective. See also approval premium receipt, insurability premium receipt. Contrast with binding premium receipt.

conditionally renewable policy. An individual health insurance policy that grants the insurer a limited right to refuse to renew the policy at the end of a premium payment period, as long as the reason for refusal is stated in the policy and is not related to the insured’s health. An insurer can increase the premium rate for any class of conditionally renewable policies. See also cancellable policy, noncancellable policy, guaranteed renewable policy, optionally renewable policy.

conditionally vested commission. In insurance sales, a commission that becomes vested only after a producer reaches a certain age or number of years of service with the company.

Conduct Rule 2210. See Advertisement Rule.

Conduct Rule 2310. See Suitability Rule.

Conduct Rule 2821. In the United States, a Financial Industry Regulatory Authority conduct rule that significantly expands the suitability requirements contained in the Suitability Rule.

Conduct Rule 3010. See Supervisory Rule.

conservation. Efforts by a producer or an insurer to ensure that issued policies do not lapse but remain in force for as long as possible.

conservation unit. Within an insurance company, a group of personnel specially trained to conserve—or keep in force—insurance policies.

conservative financial strategy. A financial management strategy that emphasizes avoiding risks that, while potentially enhancing a company’s profitability, could threaten its solvency. Contrast with aggressive financial strategy.

conservative fund. A mutual fund that has the objective of preservation of capital.

conservator. See receiver.

conservatorship. See receivership.

consideration. A requirement for the formation of a valid informal contract that is met when each party gives or promises something that is of value to the other party.

Consolidated Omnibus Budget Reconciliation Act (COBRA). In the United States, a federal law that requires group medical expense insurance plans sponsored by employers with 20 or more employees to allow employees and certain dependents to continue their group coverage for a stated period of time following a qualifying event that causes the loss of group health coverage.

consolidation. As it relates to the financial services industry, the combination of financial services institutions within or across sectors.

constructive delivery of a policy. An insurance policy delivery that occurs when an insurer releases the policy with intent to be bound by it regardless of whether the policy is physically delivered to the applicant. For example, courts have found that constructive delivery occurs when a policy is mailed to an authorized agent of the insurer.

consumer credit report. A report prepared by a consumer reporting agency that (1) bears on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living and (2) is used or collected as a factor in establishing the consumer’s eligibility for insurance or credit. Also known as a consumer report.

consumer finance company. A finance company that makes loans to people so that they can buy items such as furniture and appliances, make home improvements, and pay off small debts. Contrast with commercial finance company.

Consumer Price Index (CPI). A number that results from comparing the average price of a “market basket” of goods and services at a specified point in time to the average price of the same market basket items at a different point in time.

consumer report. See consumer credit report.

consumer reporting agency. A private business that assembles or evaluates information on consumers and furnishes consumer reports to other people and organizations in exchange for a fee.

contact center. An organizational unit that provides a company’s customers with a variety of channels for communicating with the company. Also known as call center, customer contact center, customer support center.

contest. In the context of insurance claim administration, a court action to determine the validity of a claim.

contestable claim. A claim for life insurance policy proceeds following the death of an insured during the policy’s contestable period. See also contestable period.

contestable period. The time period (often two years) following policy issuance within which an insurer has the right to void a life insurance contract if the application for insurance contained a material misrepresentation. See also incontestability provision.

contingency plan. See business continuance plan.

contingency pricing structure. A variation in premium rate structures for individual life insurance products that gives an insurer mechanisms for adjusting its charges for an in-force product to reflect the financial results for the product.

contingency reserves. See special surplus.

contingency risks. See C (contingency) risks.

contingent annuitant. A person who becomes the annuitant of an annuity contract if the primary annuitant dies before annuity payments begin or during the payout period.

contingent beneficiary. The party named to receive a life insurance policy's proceeds if the primary beneficiary should die before the insured. Also known as a secondary beneficiary or successor beneficiary. See also primary beneficiary.

contingent deferred sales charge (CDSC). See back-end load.

contingent payee. (1) The person or party who will receive any life insurance proceeds still payable at the time of the payee’s death. Also known as the successor payee. (2) The person or other entity who will receive any remaining annuity payments upon the death of the payee.

continuation. For an insurance policy, an event that occurs either when (1) the provisions of an in-force policy are significantly modified or (2) a policy replaces an existing policy from the same direct writer. Additionally, a continuation of an insurance policy differs from a new policy in at least one of the following ways: the policy is not subject to the company’s new business underwriting requirements; the direct writer does not pay full first-year commissions to the insurance producer; the policy does not introduce a new suicide exclusion period; or the policy does not introduce a new contestable period.

continuation coverage. (1) In the United States, group medical expense coverage that qualified employees elect to continue according to the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA). (2) The coverage provided to the customers of a failed insurance company under an assumption reinsurance arrangement.

continuation provision. A reinsurance agreement policy provision that addresses which reinsurer(s) should provide the reinsurance, the amount of reinsurance, and the effective date of reinsurance for continued policies.

continuous budget. See rolling budget.

continuous-premium whole life policy. A whole life insurance policy under which premiums are payable until the death of the insured. Sometimes referred to as a straight life insurance policy or an ordinary life insurance policy.

contract. A legally enforceable agreement between two or more parties; the agreement consists of a promise or a set of promises.

contract form. A standardized legal agreement between an insurer and customers that shows the terms, conditions, benefits, and ownership rights associated with a specific insurance or annuity product. See also policy form.

contract maintenance charge. For variable (unit-linked) life insurance and annuity products, a periodic charge assessed to cover general maintenance costs, such as preparation of account and other statements.

contract of adhesion. A contract that one party prepares and that the other party must accept or reject as a whole, without any bargaining between the parties as to the terms of the contract. Contrast with bargaining contract.

contract of indemnity. An insurance policy under which the amount of the policy benefit payable for a covered loss is based on the actual amount of financial loss that results from the covered event, as determined at the time of the event. For example, many medical expense policies are contracts of indemnity. Contrast with valued contract.

contract owner. The person or other entity who owns and exercises all the rights and privileges of an annuity contract.

contract under seal. See formal contract.

contractual benefit expenses. See expenses for contractual benefits.

contractual capacity. The legal capacity to make a contract.

contractual claim liability. The amount of money necessary to pay the claims actually incurred by an insured group during a specified period, typically one year.

contractual reserve. A liability that identifies the amount that, together with future premiums and investment earnings, represents the expected amount of future benefits payable on an insurer’s in-force business. Also known as policy reserve, legal reserve, required reserve, statutory reserve, and tabular reserve. Contrast with noncontractual reserve.

contractual savings institution. A financial institution that acquires funds at periodic intervals on a contractual basis.

contribution margin. The difference between a product’s total revenues and its total variable costs.

contributory plan. A group insurance plan under which insured group members must pay part or all of the premium for their coverage. Contrast with noncontributory plan.

control cycle. A repetitive process designed to ensure that all areas of a company adhere to the company’s performance standards. See also concurrent control, feedback control, steering control.

controllable expense. A cost over which a specified manager or organizational unit has power and influence. Contrast with noncontrollable expense.

controlled business. Insurance written to cover a producer or the producer’s family or the producer’s business.

controller. The head of a company’s accounting function. Also known as comptroller.

conventional mortgage. A mortgage in which the interest rate, term, and periodic payment amounts are all fixed in advance.

conversion privilege. (1) A term life insurance policy provision that allows the policyowner to change (convert) the policy to a cash value policy without providing evidence that the insured is an insurable risk. (2) A group life insurance policy provision that allows a group insured whose coverage terminates for certain reasons to convert her group life insurance coverage to an individual life insurance policy, usually without presenting evidence of her insurability.

convertible bond. A type of bond that can be exchanged for shares of the issuing company’s common stock at the option of the bondholder.

convertible term insurance policy. A term life insurance policy that gives the policyowner the right to convert the term policy to a cash value life insurance policy.

cooling-off provision. See free-look provision.

coordination of benefits (COB) provision. A group medical expense insurance policy provision that is designed to prevent a group insured who is covered under more than one group medical expense policy from receiving benefit amounts that are greater than the amount of medical expenses the insured actually incurred.

copayment. A specified, fixed amount health insurance plan members must pay for specified services at the time the medical services are received.

corporate bond. A bond issued by a corporation. The risk associated with a corporate bond is based on the ability of the bond issuer to make interest payments and to repay the bond principal to the bondholder.

corporate governance. The responsibility and authority of a company’s board of directors to direct the organization to properly fulfill its missions on behalf of the company’s legitimate stakeholders in a legal and fiscally responsible manner.

corporate retention limit. The maximum amount of acceptable total retention under all lines of business that a group of affiliated companies will retain on any one person. Also known as combined retention.

corporation. A legal entity, separate from its owners, that is created by the authority of a government and that continues beyond the death of any or all of its owners. Contrast with partnership, sole proprietorship.

cost accounting system. An accounting subsystem that accumulates expense data for the dual purposes of effective cost control and accurate product design activities.

cost allocation. The accounting process of assigning an indirect cost to a particular cost object according to a formal procedure. Also known as expense allocation.

cost analysis. See expense analysis.

cost basis. In insurance, the total amount invested in an insurance or annuity contract. (1) For an insurance contract, the sum of all premiums paid, less withdrawals, dividends, and outstanding policy loans. (2) For an annuity contract, the portion of the annuity’s accumulated value on which income tax has already been paid.

cost of benefits. For an insurance or annuity product, the value of the contractually required benefits that the product promises to pay. Also known as the cost of insurance.

cost of capital. The overall percentage cost the insurer pays for the funds it employs.

cost of insurance. See cost of benefits.

cost recovery rule. In the United States, a federal income tax rule stating that amounts withdrawn from an annuity are considered a return of the owner's cost basis first, and are therefore nontaxable, until the entire cost basis has been withdrawn. All subsequent withdrawals are considered earnings and are taxed as income. Also known as first-in-first-out rule.

cost-of-living adjustment (COLA) benefit. A disability income insurance benefit that provides for periodic increases in the disability income benefit amount that the insurer will pay to a disabled insured; these increases usually correspond to increases in the cost of living.

cost-volume-profit (CVP) analysis. A type of cost analysis used to determine how changes in product prices, sales volume, fixed costs, variable costs, and the type of products a company offers affects its profit. Also known as breakeven analysis or profit-volume analysis.

counterparty risk. For each party to a contract or business transaction, the potential that the other party to the contract or transaction will fail to fulfill its obligations.

coupon payment. An interest payment made by the bond issuer to the bondholder.

coupon rate. For a bond, the interest rate that determines the amount of periodic interest payments made to the bondholder.

covered person. See group insured.

CPI. See Consumer Price Index.

CPP. See Canada Pension Plan.

credibility factor. In group insurance, a percentage that represents the amount of weight given to a group’s actual claim experience for premium rate calculation purposes. See also blended rating.

credit. (1) The financial service that enables people to purchase now by giving a promise to pay in the future. (2) A reduction from tax liability. (3) In accounting, a specified change made to the monetary value of a financial account. A credit increases the value of liability accounts, owners’ equity accounts, and revenue accounts, whereas it decreases the value of asset accounts and expense accounts. (4) In the numerical rating system, a proposed insured’s medical and nonmedical characteristics that have a favorable effect on mortality or morbidity and are sometimes assigned “minus” values (such as –25). Contrast with debit.

credit life insurance. A type of term life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid.

credit products. Financial products that enable owners to purchase products and services even if they do not have the entire purchase price on hand, and to either delay payment until funds are available or to spread the payment over time.

credit risk. The risk that either a party will default on its obligations to an insurer or an insurer will sustain a loss based on an adverse change in a party’s creditworthiness. For example, a borrower's failure to repay a loan or otherwise meet a contractual obligation.

credit union. A nonprofit depository institution that does business only with its depositors—called members—who traditionally shared a common bond, such as an employer or their industry.

crediting rate. For a fixed deferred annuity or a fixed subaccount of a variable annuity, the interest rate applied to the customer’s accumulation value.

crediting rate formula. A formula used in crediting interest to a customer’s fixed deferred annuity account values, typically either the portfolio method or the new money method of crediting interest.

crediting-rate resolution. A formal declaration by the board of directors of the rate of interest the insurer will credit on customers’ money held in interest-bearing products.

creditor insurance. Life insurance coverage designed to pay for the economic loss suffered by a creditor when a key person of a debtor business dies before the debt is paid. Also known as loan coverage or debt coverage.

critical illness (CI) benefit. See dread disease benefit.

cross-purchase agreement. A type of buy-sell agreement in which each partner agrees to purchase a share of a deceased partner’s interest in the partnership by funding the agreement with an insurance policy on the life of each of the other partners. Contrast with entity agreement.

C-share annuity. A variable annuity that does not have a front-end or back-end load, but which typically has a higher mortality and expense risks charge than B-share, L-share, and A-share annuities. Also known as a no load annuity.

CSR. See customer service representative.

cumulative dividend. A type of preferred stock arrangement in which a company must pay in full any unpaid scheduled dividend on its preferred stock before it may pay any dividend on its common stock.

cumulative preferred stock. A type of preferred stock that requires the company to pay in full any unpaid scheduled dividends on its preferred stock before it may pay any dividends on its common stock.

currency of risk. The currency, specified in a reinsurance agreement, that is to be used in calculating the amount of risk reinsured. Also known as original currency.

currency risk. The risk that arises from changes in currency exchange rates.

current assets. Assets such as cash and readily marketable assets that can be converted to cash within one year. Also known as short-term assets. Contrast with current liabilities, long-term assets.

current interest rate. (1) For an annuity contract, the interest rate, based on the prevailing interest rates in the economy when the annuity is purchased, that an insurer promises to pay for a specified time period—usually one, three, or five years. (2) Generally, the prevailing interest rate in the economy at a given time.

current interest-crediting rate. The interest rate an insurer declares and pays if a fixed deferred annuity contract remains in force for a specified period of time. See also guaranteed interest-crediting rate and excess interest-crediting rate.

current liabilities. Debts that are expected to be paid within the following twelve months. Also known as short-term liabilities. Contrast with long-term liabilities, current assets.

current market value. An asset’s selling price under current economic conditions. Also known as fair market value. Contrast with book value.

current mortality rate. In universal life (UL) products, the monthly mortality rate actually used to calculate the monthly mortality charge; is generally substantially lower than the guaranteed maximum mortality rate. See also guaranteed maximum mortality rate.

current open claimant. In a group insurance plan, a group insured who is receiving short-term or long-term disability income benefits.

current ratio. A financial ratio that divides a company’s current assets by its current liabilities to measure its short-term debt-paying ability.

current yield. A measure of return on a bond calculated by dividing the bond's coupon rate by the bond's current market price.

custodial account. An account set up at a depository institution or other financial institution for the benefit of a minor or other person who lacks legal capacity.

customer contact center. See contact center.

customer service representative (CSR). Any employee whose primary job responsibility is to support external customers by conducting two basic types of activities: (1) interacting with customers through face-to-face communications or through communications media, such as the telephone, fax, e-mail, or Internet chat sessions, and (2) processing transactions for customers.

customer support center. See contact center.

CVP analysis. See cost-volume-profit analysis.

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