LOMA Glossary

The LOMA Glossary of Insurance and Financial Services Terms

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D&O liability insurance. See directors and officers liability insurance.

daily benefit amount. Under a long-term care insurance policy, the maximum amount the insurer will pay for each day of an insured’s long-term care at a care facility or in the patient’s home.

damages. Monetary compensation that may be recovered by a plaintiff who has suffered a loss or injury as a result of a defendant’s wrongful conduct; the basic legal remedy for most civil wrongs. See also compensatory damages, punitive damages.

date of expiry. In reinsurance arrangements, the date upon which the reservation of reinsurance facilities will be cancelled if the reinsurer does not receive a cession or placement information from the direct writer.

Day 1 functionality. The administrative and systems processes that must be in place and functioning before an insurance product can be introduced to market.

Day 2 functionality. The administrative and systems processes that are necessary at some future date to service and administer an insurance product, but which can be implemented after the product has been launched.

DD benefit. See dread disease benefit.

dealer. An institution that holds an inventory of securities and is always ready to buy and sell securities from its own account.

death benefit. (1) The amount of money paid by an insurer to a beneficiary when the person insured by a life insurance policy dies. Also known as the policy proceeds. (2) An annuity contract feature which states that, if the contract owner dies during the accumulation period, a named beneficiary will receive a benefit of at least as much as the accumulation value at the time of the contract owner’s death. Also known as a survivor benefit or policy proceeds.

death certificate. A document that attests to the death of a person and bears the signature—and sometimes the seal—of an official authorized to issue such a certificate.

debenture. A bond that is not backed by collateral but only by the full faith and credit of the issuer. Also known as an unsecured bond. Contrast with a secured bond.

debit. (1) In accounting, a specified change made to the monetary value of an account; a debit increases the value of asset accounts and expense accounts, whereas it decreases the value of liability accounts, owners’ equity accounts, and revenue accounts. (2) In the numerical rating system, a proposed insured’s medical and personal risk factors that have an unfavorable effect on mortality and are assigned “plus” values (such as +25). Contrast with credit.

debit agent. See home service agent.

debit life insurance. See home service life insurance.

debt coverage. See creditor insurance.

debt security. A financial security that represents an obligation of indebtedness owed by a business, government, or an agency. Contrast with equity security.

debt-consolidation loan. A loan that combines all of one’s high interest rate credit card debts into one loan that has a lower interest rate than the credit card rates.

debtor-creditor group. In group insurance, a group that consists of lending institutions, such as banks, credit unions, savings and loan associations, finance companies, retail merchants, and credit card companies, and their debtors.

debt-to-equity ratio. A financial ratio calculated by dividing a company’s total long-term debt by its owner's equity, that is helpful in determining a company’s solvency. See also leverage ratio.

debt-to-surplus ratio. A type of financial ratio calculated by dividing an insurer's total liabilities by its surplus. See also leverage ratio.

decedent. A person who has died.

declined class. See declined risk class.

declined risk class. In individual life insurance underwriting, a risk class composed of proposed insureds whose anticipated extra mortality is so great that an insurer cannot provide coverage at an affordable cost or whose mortality risk cannot be predicted because of recent or unusual medical conditions or other risk factors. Also known as declined class. Contrast with standard risk class, substandard risk class, and preferred risk class.

decreasing term life insurance. Term life insurance coverage that provides a policy benefit that decreases in amount over the term of coverage. Contrast with increasing term life insurance.

deductible. A flat dollar amount of eligible expenses that an insured must pay before the insurer begins making any benefit payments under an insurance policy. (1) In medical expense insurance policies, the deductible usually applies to the total of eligible medical expenses incurred during a period of time, such as a year. Other types of policies, such as property-casualty coverages, may have a per incident deductible. (2) In stop-loss insurance, the dollar amount of claims that an employer must pay for any individual in a stated period of time before the stop-loss insurer reimburses the employer for any excess amount. Also known as an individual deductible or a specific deductible.

deductible period. See elimination period.

deemer provision. A provision that many states in the United States include in their policy form filing requirements; if the state insurance department has not disapproved a policy form within a specified time, then the policy form is deemed to have been approved by the department.

default. A failure to meet a financial obligation.

default risk. The risk that an insurer will not receive the cash flows to which it is entitled because a party with which the insurer has a financial arrangement is late with payments or entirely fails to pay its obligations. Also known as invested asset credit risk. See also default.

deferred annuity. An annuity contract under which payment of periodic income benefits is deferred for a period of time, usually more than a year, after the contract is purchased. During this period of time, called the accumulation period, the owner's premium or premiums accumulate at interest. See also accumulation period. Contrast with immediate annuity.

deferred compensation plan. An employee benefit plan established by an employer to provide income benefits to an employee at a date later than the income was earned (such as after the employee’s retirement).

deferred profit sharing plan (DPSP). A type of retirement plan in Canada that allows employers to make contributions on behalf of employees that are related to profits; similar to qualified profit sharing plans in the United States.

defined benefit formula. A retirement plan benefit formula that specifies the amount of retirement benefit a plan sponsor promises to provide to each plan participant. Contrast with defined contribution formula.

defined benefit plan. A retirement plan structured using a defined benefit formula that specifies the amount of retirement benefit a plan sponsor promises to provide to each plan participant. Contrast with defined contribution plan.

defined contribution formula. A retirement plan benefit formula that specifies the level of contributions that the plan sponsor promises to make to the plan. Contrast with defined benefit formula.

defined contribution plan. A retirement plan structured according to a defined contribution formula that specifies the level of contributions that the plan sponsor promises to make to the plan. Contrast with defined benefit plan.

deflation. A fall in an economy's general price level. Contrast with inflation.

demutualization. The process an insurer undertakes to convert from a mutual form of ownership to a stock form of ownership. Contrast with mutualization.

dental expense coverage. Medical expense insurance coverage that provides benefits for routine dental examinations, preventive dental work, and dental procedures needed to treat tooth decay and diseases of the teeth and jaw.

dependent. For purposes of establishing eligibility for group insurance coverage, (1) a spouse or (2) an unmarried child who is under a specified upper age limit, or a disabled child of any age, who relies on the group member for financial support and maintenance.

dependent coverage. Group insurance coverage on spouses and dependent children of insured group members.

deposit administration contract. A type of retirement plan funding vehicle in which a plan sponsor deposits assets with an insurer and the assets are placed in the insurer’s general investment account. Upon a plan participant’s retirement, the insurer applies funds from the general account to provide an immediate annuity for the retiree.

deposit-based commission schedule. For annuity sales, a commission schedule that pays commissions only on premium payments made by annuity owners. Contrast with asset-based commission schedule.

depository institution. A financial services company, such as a commercial bank or thrift institution, that engages in the retail banking activities of accepting deposits from individuals and making loans.

depreciation. (1) In general, a decline in the price or value of an investment. Contrast with appreciation. (2) In accounting, the process of allocating (spreading) the cost of an asset over the asset’s estimated useful life; depreciation typically applies to an insurer’s long-term assets such as buildings and other real estate. Compare to amortization.

derivative. A financial security, such as a stock option, that derives its investment value from another security.

desk audit. In reinsurance, the systematic and ongoing review of a direct writer’s quality of administration, performed by the reinsurer’s staff at the reinsurer’s own offices.

development expense. An expense an insurer incurs in designing, testing, and implementing a new product or product line.

DFA. See dynamic financial analysis.

DI insurance. See disability income insurance.

diagnostic and treatment codes. Numbers and words that represent specific medical diagnoses and treatments and are used by health care providers to communicate medical information about medical expense claims to insurers.

direct costing. See marginal costing.

direct costs. In accounting, a cost incurred for or physically traceable to one specific product, line of business, department, or other cost object. Contrast with indirect costs.

direct premium. In reinsurance, the direct writer’s premium on the original policy.

direct response advertising. A type of product advertising designed to encourage customers to take action immediately, either by purchasing a product or requesting additional information about a particular product or service.

direct response distribution system. A type of distribution channel often used in insurance sales in which customers purchase products directly from a company by responding to advertisements, Internet Web sites, or telephone solicitations.

direct response policy. A life insurance policy, distributed through a direct response system, which may be fully underwritten, underwritten on a nonmedical basis, or underwritten on a guaranteed-issue basis.

direct rollover. The transfer of funds from one tax-advantaged retirement plan to another when the transfer occurs directly between two financial institutions and the owner or plan participant does not actually receive the funds.

direct writer. In a reinsurance transaction, the insurance company that purchases reinsurance to transfer all or part of the risks on insurance policies the company issued. Contrast with reinsurer. Also known as ceding company.

director of insurance. See insurance commissioner.

directors and officers (D&O) liability insurance. A type of liability insurance that covers directors and officers of a corporation for their own liability resulting from failing to exercise the appropriate standard of care when discharging their corporate duties.

disability buyout coverage. Disability income insurance coverage that provides benefits designed to fund the buyout of a partner’s or owner’s interest in a business should he become disabled.

disability income (DI) insurance. A type of health insurance that provides income replacement benefits to an insured who is unable to work because of illness or injury.

disability income benefit. A supplemental life insurance policy benefit that provides a monthly income benefit if the insured becomes totally disabled while the policy is in force. Typically, the amount of the monthly disability income benefit is a stated dollar amount—such as $10—per $1,000 of life coverage.

disaster recovery plan. See business continuance plan.

disbursements. (1) In general usage, any payments of money. (2) For annuity contracts, payments insurers make from deferred annuity contracts during the accumulation period. Also known as distributions.

disclaimer of opinion. A type of nonstandard auditor’s opinion indicating that the auditor has no opinion on the financial statements; disclaimers may be disallowed under international financial reporting standards (IFRS).

disclosure document. In annuity sales, a written document that identifies and describes the specific annuity being considered for purchase.

disclosure statement. A written statement providing nontechnical explanations of the operation, statutory requirements, and income tax consequences of an individual retirement annuity.

discount. For bonds, the difference between a bond’s market value and its par value when the market price is less than the par value.

discount bond. A coupon bond that has a current market value that is lower than the bond’s principal or par value but that pays the full value of the bond to the holder at maturity. Contrast with premium bond.

discount broker. An investment broker offering reduced fees for stock trades, but who generally offers little, if any, investment advice or investing tools.

discounting. The process of converting a future value to its present value. Contrast with compounding.

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

discretionary group. In the United States, any type of group other than a single employer group, a debtor-creditor group, a labor union group, a multiple employer group, an association group, or a credit union group that has been approved for group insurance coverage by the applicable state insurance department.

disinflation. A decrease in the rate of inflation. See also inflation.

disputed claim. A claim that an insurer has thus far refused to pay but that it may pay in the future. Also known as a resisted claim.

dissolution. The termination of a corporation’s legal existence.

distributions. See disbursements.

diversifiable risk. Risks that are specific to an individual asset or issuer. Also known as nonsystematic risk or specific risk.

diversification. A defensive principle of investment portfolio construction that involves balancing the selection of portfolio assets among a variety of types of securities or industries. Diversification spreads risk across many risk characteristics to reduce the effect of any one risk.

diversification criteria. Rules stating limits on the portion of an investment portfolio that may be invested in a stated asset class. Also called limitations on asset concentrations or asset allocation criteria.

dividend. See stockholder dividend.

dividend accumulations option. A policyowner dividend payment option that allows a policyowner to elect to leave policyowner dividends on deposit at interest with the insurer.

dividend addition. An additional amount of life insurance that a policyowner purchases with policy dividends. Also known as paid-up addition. See also policy dividend.

dividend options. Specified methods by which the owner of a participating life insurance policy or participating annuity may receive policy dividends.

dividend provision. A provision included in participating life insurance or annuity contracts that describes the contract owner’s right to share in the insurer’s divisible surplus, if any, and describes the options available for receiving policy dividends.

dividend yield. The annual percentage return earned by dividends on a common or preferred stock.

divisible surplus. The portion of an insurance company’s earnings that is available for distribution to the owners of participating policies after the company sets aside funds for contractual obligations, operating expenses, contingencies, and general business purposes.

doctrine of reasonable expectations. A legal doctrine under which the courts interpret the terms of an insurance contract in such a way as to honor the reasonable expectations of the individual who purchased the policy even if the language of the contract does not literally support these expectations.

doctrine of substantial compliance. A legal doctrine which provides that when a policyowner has done everything possible to comply with the beneficiary change procedure set forth in the policy, but has failed because of circumstances beyond his control, the change will be considered effective.

Dodd-Frank Act. See Dodd-Frank Wall Street Reform and Consumer Protection Act.

Dodd-Frank Wall Street Reform and Consumer Protection Act. In the United States, a federal law designed to protect investors by requiring more transparency and accountability by financial services companies. Also known as the Dodd-Frank Act.

dollar cost averaging. An investment strategy that involves investing a fixed dollar amount in one or more financial instruments on a regular, periodic basis, regardless of the current values of the selected instruments.

domestic corporation. From the point of view of a given state in the United States, a corporation that was incorporated within that jurisdiction. Contrast with alien corporation and foreign corporation.

domicile. The jurisdiction in which a company incorporates.

domiciliary state. See state of domicile.

double indemnity benefit. An accidental death benefit that is equal to the face amount of a life insurance policy, and that becomes payable if the insured's death is accidental.

downstream holding company. A holding company that is owned or controlled by the company that forms it and that in turn owns or controls other companies. Contrast with upstream holding company.

DPSP. See deferred profit sharing plan.

dread disease (DD) benefit. An accelerated death benefit under which the insurer agrees to pay a portion of the policy’s face amount in a lump sum to the policyowner if the insured suffers from one of a number of specified diseases. Also known as a critical illness benefit.

drop notice. A written notification from a direct writer to a reinsurer stating that the direct writer no longer needs reinsurance that it previously _requested and asking the reinsurer to cancel the reservation. Also known as a close notice.

DST. See dynamic solvency testing.

dual control. See segregation of duties.

duration. A statistic that measures the price sensitivity of an asset to changes in interest rates.

duration gap report. A report that describes the results of duration analysis of an insurer’s investment and product portfolios; provides a snapshot of the insurer’s asset-liability match at the time of the report.

duration matching. A strategy that involves matching the duration statistics for fixed-income assets such as bonds with the duration statistics for the products that the assets support.

duration of the agreement provision. A reinsurance agreement policy provision that addresses when the reinsurance agreement becomes effective and when it ends.

dynamic assumptions. In product modeling, variables that change over time, but in a way that is predictable and formula driven. Contrast with fixed assumptions.

dynamic budget. See flexible budget.

dynamic financial analysis (DFA). The use of simulation modeling and multiple scenario testing to project into a future period an insurer’s assets, liabilities, and owners’ equity as of a given valuation date and to compare the values of those variables at various times after the valuation date.

dynamic solvency testing (DST). An application of dynamic financial analysis that involves projecting into a future period an insurer’s capital as of a given valuation date and comparing the projected amounts of capital at various times after the valuation date. Also known as capital adequacy testing. See also dynamic financial analysis.

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