LOMA Glossary

The LOMA Glossary of Insurance and Financial Services Terms

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NAIC. See National Association of Insurance Commissioners.

named perils coverage. A type of property insurance which covers only losses that are specifically named in the policy. For example, the policy might cover losses resulting from fire. Contrast with open perils coverage.

NAR. See net amount at risk.

NASD. National Association of Securities Dealers. See Financial Industry Regulatory Authority (FINRA).

National Association of Insurance Commissioners (NAIC). In the United States, a nongovernmental association of the insurance commissioners of all the states whose primary function is to promote uniformity of state insurance regulation by developing model laws and regulations as guidelines for the states.

National Association of Securities Dealers (NASD). See Financial Industry Regulatory Authority (FINRA).

National Conference of Insurance Legislators (NCOIL). An organization of state legislators who are concerned with the issue of insurance regulation.

National Insurance Producer Registry (NIPR). In the United States, a nonprofit affiliate of the National Association of Insurance Commissioners (NAIC) that serves as a gateway to producer information.

National Organization of Life and Health Guaranty Associations (NOLHGA). In the United States, an organization that handles problems of insolvencies involving large, multistate insurers and whose primary function is to facilitate communications among the various state guaranty associations, which operate independently from one another.

NAV. See net asset value.

NCOIL. See National Conference of Insurance Legislators.

needs analysis. In insurance sales, the process of developing a detailed personal and financial picture of a prospect in order to evaluate the prospect’s financial needs.

negative tail scenario. A highly unfavorable scenario identified in a stochastically modeled product design as a potential outcome.

negative variance. A variance in which the actual amount or percentage of an amount is less than expected. Contrast with positive variance.

negligence. A private wrong committed by a person who failed to exercise the legally required degree of care in doing something that is otherwise legally permissible or omitting to do something that is otherwise legally required.

negotiable instrument. A written document that represents an unconditional promise or order to pay a specified amount of money upon the demand of the owner of the instrument.

negotiated trusteeship. For group insurance purposes, when collective bargaining between a union and an employer result in an agreement to provide the organization with insurance.

net amount at risk (NAR). The difference between the face amount of a life insurance policy—other than a universal life policy—and the policy reserve (or cash value) at the end of any given policy year.

net asset value (NAV). For variable annuity subaccounts and mutual funds, the NAV is calculated as the total value of the subaccount or mutual fund assets after expenses divided by the total number of fund shares outstanding.

net cash flow. For an insurance or annuity product, a product’s total cash inflows generated from premiums, investments, and other sources minus the total cash outflows generated by such items as commissions, expenses, and benefit payments; focuses only on cash.

net cash surrender value. See also cash surrender value.

net cash value. See also cash surrender value.

net income. See profit.

net level premium approach. A method insurers use to calculate contractual reserves that assumes that the amount of a policy's net premiums does not change during the life of a policy. See also prospective reserve valuation and retrospective reserve valuation.

net present value (NPV). For an investment project, a monetary amount that is generally calculated by subtracting the initial investment in the project from the present value of the project’s earnings over a future period, usually the entire expected life of the project.

net profit margin. A financial ratio that shows how much after-tax profit is generated by each dollar of total revenue; found by dividing net income by total revenues. Also known as return on revenue ratio.

net reserve valuation method. A method of computing insurance policy reserves that excludes product-related expenses. Contrast with gross reserve valuation method.

net single premium. For a life insurance or an immediate annuity product, the actuarial present value at the time of issue of the product’s total expected future cost of benefits.

net worth. In accounting, the difference between a person’s or an organization’s assets and liabilities.

netting off. A process by which a direct writer subtracts the claim amount owed to it by a reinsurer from the amount that the direct writer owes the reinsurer for premiums.

new business processing. In insurance, all of the activities required to process applications for insurance products, evaluate the risks associated with applications for life insurance, and issue policies.

new business strain. See surplus strain.

new money method. For fixed annuities, an interest crediting method in which an insurer applies different interest rates to various portions of the money in an annuity account, depending on the guarantees in effect when each premium went into the annuity account. The current interest rate, the interest terms, and all guarantees on the date of a given premium payment remain attached to the amount of that payment. Contrast with portfolio method.

NGEs. See nonguaranteed elements.

NIGO rates. See not-in-good-order rates.

NIPR. See National Insurance Producer Registry.

NOLHGA. See National Organization of Life and Health Guaranty Associations.

no-load fund. A type of mutual fund that does not assess sales charges.

nominal interest rate. An interest rate that is quoted contractually by a lender or a borrower and does not take into account the effects of compounding. The nominal interest rate will always be less than the effective interest rate. Also known as stated interest rate. Contrast with effective interest rate.

nonadmitted asset. An asset that cannot be reported on the Assets page of the U.S. Annual Statement and that may not be applied to support an insurer’s required reserves. Contrast with admitted asset.

nonadmitted insurer. See unauthorized insurer.

noncancellable policy. An individual health insurance policy that is guaranteed to be renewable until the insured reaches the limiting age stated in the contract as long as the policy's premiums are paid on time. The insurer cannot increase the premium rate under any circumstances. See also cancellable policy, conditionally renewable policy, guaranteed renewable policy, optionally renewable policy.

noncontractual reserve. A liability amount that an insurer estimates it will need to pay the insurer’s business obligations that are not directly attributable to benefits payable for a specified product. All reserves that are not contractual reserves are classified as noncontractual reserves. Contrast with contractual reserve.

noncontributory plan. A group insurance plan for which the group insureds are not required to pay any part of the premium for the coverage; the premiums are paid entirely by the policyholder and all eligible group members are provided with coverage automatically. Contrast with contributory plan.

noncontrollable expense. A cost over which no specified manager or organizational unit has power or influence. Contrast with controllable expense.

noncurrent assets. See long-term assets.

noncurrent liabilities. See long-term liabilities.

nondiversifiable risk. Risks that have broad, similar effects on all assets in an economic system and therefore cannot be eliminated through diversification. Also known as systematic or systemic risk. Contrast with diversifiable risk.

nonduplication of benefits provision. In a health insurance policy, a coordination of benefits provision that, if included in a secondary provider’s plan, limits the amount payable by the secondary plan to the difference, if any, between the amount paid by the primary plan and the amount that would have been payable by the secondary plan had that plan been the primary plan.

nonforfeiture provision. (1) A cash value life insurance policy provision that sets forth the options available to the owner of a cash value policy if the policy lapses or if the policyowner decides to surrender the policy. (2) An annuity contract provision that states the benefit amounts that an insurer will pay under a deferred annuity contract if the premium payments stop or the contract is surrendered prior to the contract's maturity.

nonforfeiture values. The benefits that an insurer guarantees to a policyowner if the insurance contract lapses.

nonguaranteed elements (NGEs). In life insurance and annuity products, product features that allow an insurer to reward customers when the insurer has experienced or anticipates that it will experience favorable deviations from its assumptions or, conversely, allow the insurer to charge customers more when the insurer has experienced or anticipates it will experience unfavorable deviations from its assumptions.

noninstallment credit. Any loan or credit arrangement that does not require the borrower to make a series of fixed periodic payments on the loan or credit balance.

nonlife insurance company. See property/casualty insurance company.

nonmedical basis. In life insurance sales, a way of applying for insurance in which the proposed insured does not have to provide medical proof of insurability.

nonmedical limit. The total amount of life insurance from all sources that an insurer will permit to be issued on a proposed insured without requiring the proposed insured to undergo a medical examination.

nonmedical supplement. In life insurance sales, a document that contains a proposed insured’s answers to medical history questions recorded by a producer or teleunderwriter at the time of application. Also known as a statement of health (SOH).

nonpar policy. See nonparticipating policy.

nonparticipating policy. A type of life insurance policy in which the policyowner does not share in the insurer’s surplus by receiving policy dividends. Also known as a nonpar policy. Contrast with participating contract.

nonproportional reinsurance. A type of reinsurance arrangement in which neither the reinsurer nor the direct writer knows in advance what share of a risk the reinsurer will ultimately assume. Instead, after a direct writer’s losses reach a specified maximum limit, the reinsurer begins to share in expenses for claims.

nonproprietary product. In insurance sales, an insurance product developed by one insurance company that is sold by another insurance company.

nonpublic personal information. Information about a customer that a financial services company collects in connection with providing a financial product or service to the customer and that is not available from public sources.

nonqualified annuity. An annuity that does not qualify to receive favorable tax treatment and is purchased with money that has already been taxed.

nonresident producer. From the perspective of a given state within the United States, an insurance producer who doesn't live in that state or whose principal places of business are located outside that state.

nonsystematic risk. See diversifiable risk.

nonvested commission. In insurance sales, a commission that is payable to a producer only if the producer still represents the insurer when the commission becomes due. Contrast with vested commission.

not taken up. See undeliverable.

notice of appointment. In the United States, a written statement an insurer must file with a state insurance department in order to appoint a producer as its agent.

notice of claim provision. See claims provision.

notice of expiry. In reinsurance, a document that the reinsurer uses to notify the direct writer that an offer to reinsure is due to expire and to request additional information, a cession, a drop notice, or an extension request from the direct writer.

notice of transfer. A written document that provides policyowners affected by an assumption reinsurance agreement with information about the agreement and their right to consent to or reject the transfer of their policies.

notification for fac-ob reinsurance provision. A reinsurance agreement provision that specifies the (1) information the direct writer must provide to notify the reinsurer of risks ceded and (2) maximum time periods allowed for the reinsurance parties to respond to each other concerning capacity available and capacity accepted.

not-in-good-order (NIGO) rates. In insurance new business, the percentage share of all incoming application paperwork that is received with incomplete documentation.

NPV. See net present value.

numerical rating system. In life insurance underwriting, a risk classification method in which a number—a numerical rating—is assigned to an individual proposed insured according to the degree of mortality risk he represents to the insurer; the underwriter then places the proposed insured in a risk class according to the numerical value.

nursing home. For purposes of long-term care (LTC) insurance, a custodial facility that provides basic nonmedical care and medical care as necessary to patients.

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