Life Insurance Glossary provided by LOMA's Glossary of Insurance and Financial Services Terms
Material Fact
A fact that is relevant to an insurance company’s underwriting decision regarding issuing or rating a policy.
Material Misrepresentation
In insurance, a misstatement by an applicant that is relevant to the insurer’s acceptance of the risk, because, if the truth had been known, the insurer would not have issued the policy or would have issued the policy on a different basis.
Medical Application
An application for insurance in which the proposed insured is required to undergo some type of medical examination. The results of the medical examination are then reported to the insurance company.
Medical Report
A report on a proposed insured’s health that is completed by a physician and is based on a physical examination and questioning of the proposed insured. Such a medical report serves as part of a medical application.
Misrepresentation
(1) A false or misleading statement made to induce a prospect to purchase insurance. Misrepresentation is a prohibited insurance sales practice.
(2) A false or misleading statement made by an applicant for insurance. Certain misrepresentations provide a basis for the insurer to avoid the policy.
Misstatement of Age or Sex Provision
A provision that is typically included in term life insurance and annuity policies and that describes how the amount of the policy benefit will be adjusted if the age or sex of the insured or the annuitant is incorrectly stated.
Mode of Premium Payment
The frequency with which premiums are paid (for example, annually, quarterly, monthly).
Modified-Premium Whole Life Insurance
A type of whole life insurance in which the policyowner pays a lower than normal premium for a specified initial period, such as five years. After the initial period, the premium increases to a stated amount that is somewhat higher than usual. This higher premium is then payable for the life of the policy.
Sickness, injury, or failure of health.
The rate at which sickness, injury, and failure of health occur among a defined group of people. The premium that a person pays for health insurance is based in part on the morbidity rate for that person’s age group.
A chart that shows the rates of sickness and injury occurring among given groups of people categorized by age.
The cost of the insurance protection element of a universal life policy. This cost is based on the net amount at risk under the policy, the insured’s risk classification at the time of policy purchase, and the insured’s current age.
A line graph that represents the mortality rates as they change from age to age.
The frequency with which death occurs or is expected to occur among a defined group of people.
A chart that displays the incidence of death among a given group of people categorized by age.
An insurance company owned by its policyowners.
Contrast with stock insurance company.
The process of converting a stock insurance company to a mutual insurance company.
See Mortality Charge and Expense Charge.
In the sale of direct response insurance products, a package that is mailed directly to a list of prospective purchasers who form an identified target market and that includes all the information and forms that a consumer needs to make a purchase decision and to apply for a policy.
See also Direct Response Product and Target Market.
For an insurance company, any product-related costs, including renewal commissions and some agency expenses, that are incurred after an insurance contract is in force and that are necessary to keep a policy in force. Also known as renewal expenses.
A fee that insurers charge to the owners of variable annuities to pay for administration of the contract, including preparation of statements, premium notices, mailings, and other customer services. The fee is typically a flat fee that is deducted pro rata from the various accounts in proportion to the assets in the accounts.
Traditional medical expense insurance plan that provides substantial benefits for insureds' hospital expenses, surgical expenses, and physicians' fees.
A medical expense insurance plan that combines the financing and delivery of health care within a system that seeks to control the cost, accessibility, and quality of care. Insureds within such plans typically must use, or are provided incentives to use, the health care providers managed, owned, or under contract with the health insurance provider.
The process of identifying, measuring, analyzing, and communicating financial information.
A management principle stating that managers should be informed about an operational activity only when a result differs by a specified monetary amount or a specified percentage from what was expected.
The person who heads an insurer's agency operations unit and who serves as the primary link between the home office and the insurer's field offices.
See also Home Office and Field Office.
In the United States, benefits required by state law to be provided by health insurance policies, including coverage for newborn and handicapped children, alcoholism and substance abuse treatment, and the treatment of mental illness.
A method of calculating group insurance premium rates for broad classes of groups, especially for groups with no credible claim experience. In manual rating, the insurer uses its own past experience—and sometimes the experience of other insurers—to estimate a group's expected claims and expense experience.
See also Experience Rating.
See Net Income.
In accounting, the additional total expense incurred as a result of producing one additional unit of an existing product or service. Also known as incremental cost.
A group of people who are actual or potential buyers of a product.
See also Target Market.
The general term that insurers and regulators use to designate the area of insurer activity involving advertising, sales, and distribution of insurance products.
Contrast with financial condition examination.
In the United States, a type of routine on-site regulatory investigation in which state insurance regulators verify that, in its dealings with customers, the insurer is complying with all applicable statutes and regulations regarding sales, advertising, underwriting, and claims.
See also On-Site Regulatory Examination.
State insurance laws that are designed to ensure that insurance companies conduct their businesses fairly and ethically.
The way a business organization identifies its customers, defines and develops the products or services that its customers want, and sells and distributes those products or services to customers.
The functional area within a business organization that conducts and organizes the company's sale and distribution of products and services.
For investors, the risk associated with fluctuations in stock prices.
See Current Market Value.
An annuity product that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the surrender value to fluctuate in response to market conditions.
In group insurance, a document that contains the specific provisions of the plan of insurance being applied for and that is signed by an authorized officer of the proposed policyholder.
In accounting, the overall operating and financing plans for a company during a specified accounting period. Also known as performance plan.
In group insurance, the legal document certifying the relationship between the insurer and the group policyholder and insuring a number of people under one contract.
See also Certificate of Insurance.
In accounting, an expense recognition concept which states that a company should recognize expenses as the company earns the revenues related to those expenses, regardless of when the company receives payment for the revenues earned.
(1) In general contract law, a misrepresentation of the facts by a contracting party that induces another party to enter into a contract when, had the truth been known, he would not have done so.
(2) In insurance law, a misrepresentation of the facts by an insurance applicant that is relevant to the insurer's evaluation of a proposed insured.
Materiality
Relevancy. (1) In insurance law, all facts that affect an insurer's risk-appraisal decision. (2) In accounting, the quality of accounting information that requires companies to disclose all significant information in their financial statements.
Maturity Date
(1) For endowment in insurance, the date on which an insurer will pay the face amount of an endowment policy to the policyowner if the insured is still living.
(2) In investing, the date on which a bond issuer must repay to the bondholder the amount originally borrowed.
(3) For an annuity, the date on which the insurer begins to make annuity payments. Also known as income date.
Maturity Value
See Bond Principal.
Maximum Benefit Period
In insurance, the maximum length of time during which benefits will be paid under an insurance contract.
MBE
McCarran-Ferguson Act
A U.S. federal law under which Congress agreed to leave insurance regulation to the states as long as Congress considered state regulation to be adequate.
MCCSR
MDO Policy
Measuring-Unit Concept
An accounting principle which states that a company should record its accounting information in monetary terms, such as U.S. dollars or Canadian dollars.
Mediation
A conflict resolution method in which an impartial third party facilitates negotiations between conflicting parties in an effort to create a mutually agreeable resolution to the dispute.
Medicaid
In the United States, a joint federal and state medical insurance program administered by the states to provide payment for health care services, including long-term care, for people with low incomes.
Medical Expense Insurance
A type of health insurance coverage that pays benefits for all or part of the treatment of an insured's sickness or injury.
See also Health Insurance.
Medical Information Bureau
See MIB, Inc.
Medical Necessity
A health insurance policy criterion requiring that a prescribed medical procedure be one that (1) is considered effective and that is normally used for the specified illness or injury and (2) does not exceed in scope, duration, or intensity the level of care needed to provide safe, adequate, and appropriate diagnosis or treatment.
Medical Report
The portion of an insurance application designed to be completed by both the proposed insured and a physician. A physician records the proposed insured's answers to health history questions and records the results of a medical examination given to the proposed insured. In life insurance, the medical report is known as Part II of the insurance application.
See also Paramedical Report and Part II.
Medical Savings Account (MSA)
In the United States, a trust that is created for the purpose of paying the trust account holder's qualified medical expenses and that provides the account holder with certain tax advantages.
Medicare
A U.S. government health insurance plan that provides hospital, medical, and surgical benefits for persons age 65 and older and people with certain disabilities. Medicare Part A provides basic hospital insurance and Medicare Part B provides benefits for physicians' professional services.
Medicare Supplement Insurance
In the United States, health insurance coverage designed to provide benefits for certain expenses not covered under Medicare, such as Medicare deductible amounts and copayments. This coverage is available only to individuals who are covered by Medicare. Also known as Medigap insurance.
See also Medicare.
Medigap Insurance
See Medicare Supplement Insurance.
Membership Rights
In a mutual insurance company, ownership rights, such as the right to vote in elections for the company's board of directors on the basis of one vote for each policyowner.
See also Mutual Insurance Company.
Memorandum of Association
In Canada, a document similar to letters patent that contains the fundamental terms for registering for incorporation in the provinces of British Columbia, Alberta, Saskatchewan, Ontario, Newfoundland, or Nova Scotia.
Mental Health Parity Act of 1996
In the United States, federal legislation that requires group health plans that offer medical and mental health benefits to establish the same annual and lifetime dollar limits for both mental health benefits and medical health benefits.
Merger
A legal transaction joining two corporations to form a distinct new corporation.
MGA
MIB, Inc
A nonprofit organization established to provide information to insurers about impairments that applicants have admitted to, or that other insurers have detected, in connection with previous applications for insurance. Formerly known as Medical Information Bureau.
Minimum Capital and Surplus Requirements
Solvency requirements, established by each jurisdiction's regulators, that set specific minimum dollar amounts of capital and surplus for an insurer as a whole and for each of the company's product lines. Also known as statutory minimum capitalization requirements.
Minimum cash balance
The amount of cash that a business organization determines is necessary to pay all obligations in a specified accounting period without having excess cash. Also, the monetary amount that a bank requires an account holder to keep in a given account at all times.
Minimum Cession
A statement in a reinsurance treaty describing the smallest amount of risk that an insurer will cede.
Minimum Continuing Capital and Surplus Requirements (MCCSR)
In Canada, risk-based capital requirements that federally licensed insurers must meet in order to be considered solvent. The MCCSR are similar to the National Association of Insurance Commissioners (NAIC) risk-based capital (RBC) ratio requirements in the United States.
Minimum Death Benefit Guarantee
Statement included in variable annuities specifying that, if the contract owner dies before the annuity payments begin, the named beneficiary will receive a benefit equal to the greater of (a) the total amount of premium payments made for the annuity, less any withdrawals made, or (b) some enhanced value established as of the time of the contract owner's death.
Minimum Distribution
Minimum Guaranteed Interest Rate
For a fixed annuity or a variable annuity's fixed account, the interest rate—typically three or four percent—that an insurance company contractually agrees that it will pay on the principal balance.
Minimum Premium Plan (MPP)
A group health insurance funding mechanism under which the group policyholder deposits into a special account funds that are sufficient to pay a stated amount of expected claims, and the insurer administers the plan and pays claims from that special account until the funds are exhausted. Thereafter, the insurer is responsible for paying claims from its own funds, and it charges the policyholder a premium for the coverage provided.
Minimum Required Distributions (MRDs)
Minimum Reserve Standards for Individual and Group Health Insurance Contracts
A National Association of Insurance Commissioners (NAIC) model law that establishes minimum reserve standards for all types of individual and group health insurance products except Medicare supplement and long-term care policies.
Minor
A person who has not attained the legal age of majority and, thus, has limited contractual capacity.
Misrepresentation
A false or misleading statement. (1) In insurance sales, a false or misleading statement made by a sales agent to induce a customer to purchase insurance is a prohibited sales practice. (2) In insurance underwriting, a false or misleading statement by an insurance applicant may provide a basis for the insurer to avoid the policy.
Misstatement of Age or Sex Provision
A life insurance, health insurance, and annuity policy provision that describes how policy benefits will be adjusted if the age or sex of the insured has been misstated in the insurance application. Typically, the benefits payable will be those that the premiums paid would have purchased for the correct age or sex.
MLA System
modco
model act
See model bill.
Model Annuity and Deposit Fund Disclosure Regulation
model bill
A sample law that is developed by a national association of state or provincial regulators and that the states or provinces are encouraged to use as a basis for their laws. In the United States, the National Association of Insurance Commissioners (NAIC) proposes model insurance laws, and in Canada, the Canadian Council of Insurance Regulators (CCIR) proposes such laws.
Model Hazardous Condition Regulation
In the United States, a National Association of Insurance Commissioners (NAIC) model regulation that gives the insurance commissioner of an insurer's state of domicile the authority to order the insurer to take specified actions to improve its financial condition.
Model Law on Examinations
In the United States, a National Association of Insurance Commissioners (NAIC) model law that requires each insurer domiciled in the state to undergo a financial condition examination at least every five years.
Model Newborn Children Bill
In the United States, a National Association of Insurance Commissioners (NAIC) model law that requires health insurance policies that provide coverage for a family member of the insured to provide coverage for a newly born child of the insured from the moment of birth.
Model Policy Loan Interest Rate Bill
In the United States, a National Association of Insurance Commissioners (NAIC) model law that places a maximum limit on the interest rate that may be charged on policy loans and requires insurers to state the applicable interest rate in their policies.
Model Privacy Act
model regulation
See model bill.
Model Regulation for Complaint Records to be Maintained Pursuant to the NAIC Unfair Trade Practices Act
In the United States, a National Association of Insurance Commissioners (NAIC) model regulation that describes the minimum information that insurers must include in their complaint records and sets forth a sample format for a complaint record.
Model Regulation to Eliminate Unfair Sex Discrimination
In the United States, an National Association of Insurance Commissioners (NAIC) model regulation that prohibits life and health insurers from denying benefits or coverage on the basis of a proposed insured's sex and/or marital status.
Model Replacement Regulation
Modified Coinsurance (MODCO)
A type of proportional reinsurance in which the ceding company maintains the entire reserve for each policy
See also ceding company and Reinsurer.
Modified Coverage Policy
A whole life insurance policy under which the amount of insurance provided decreases by specific percentages or amounts either when the insured reaches certain stated ages or at the end of stated time periods.
Modified Guaranteed Annuity (MGA)
A deferred annuity for which the underlying assets are held in a separate account, but the contract values are guaranteed if held for a specific time.
Modified Opinion
In accounting, an auditor's opinion that contains explanatory language concerning specified circumstances, such as material inconsistencies resulting from a change in accounting principles or practices.
Modified Premium Policies
An insurance policy for which the policyowner first pays a lower premium than she would for a similar level-premium policy for a specified initial period and then pays a higher premium than she would for a similar level-premium policy.
Contrast with level premium policies and single premium policies.
Modified Reserve
A type of contractual reserve an insurer develops using a modified reserve valuation method that permits an insurer to set a lower-than-level first-year contractual reserve in recognition of the surplus strain from a product's first-year expenses.
Money Market Fund
An investment fund that achieves great liquidity by investing in short-term, securities offering low returns and little investment risk.
Money Market Subaccount
One of the three main asset classes in an insurance company's separate account within which owners of variable annuity contracts can deposit funds and have the funds invested in short-term money instruments or cash equivalents, such as bank certificates of deposit (CDs) and United States Treasury bills.
See also bond subaccount and stock subaccount.
Money Purchase Plan
Monthly Debit Ordinary (MDO) Life Insurance
A whole life insurance policy that is marketed through the home service distribution system and is paid for by monthly premium payments.
See also home service distribution system.
Moral Hazard
The possibility that a person may act dishonestly in an insurance transaction.
Morbidity
The relative incidence of sickness and injury occurring among a given group of people.
Contrast with mortality
Morbidity Rate
The rate at which sickness and injury occur within a defined group of people. Insurers base health insurance premiums in part on the morbidity rate for a proposed insured's age group.
Contrast with mortality rate
Morbidity Table
A chart that shows the rates of sickness and injury occurring among given groups of people categorized by age.
Contrast with mortality table
Mortality
The relative incidence of death occurring among a given group of people.
Contrast with morbidity
Mortality and Expense Risks (M&E) Charge
A variable annuity fee designed to cover various risks and expenses assumed by the insurer, including the risk involved in providing the annuity death benefit and certain other guarantees. Generally, the M&E charge is calculated as a percentage of the assets held by the investment funds underlying the various subaccounts.
Mortality Experience
The number or rate of deaths that actually occur in a given group of people.
Contrast with expected mortality
Mortality Margin
A favorable difference between an insurer's actual mortality experience and the expected mortality used in the technical design of an insurance product. A type of profit margin.
Mortality Rate
A percentage rate at which death occurs among a defined group of people of a specified age and sometimes of a specified gender. Insurers base the premiums for life insurance in part on the mortality rate for a proposed insured's age group.
Contrast with morbidity rate
Mortality Risk
(1) The likelihood that a life insured will die sooner than statistically expected. (2) The likelihood that an annuitant will live longer than statistically expected.
Mortality Table
A chart that shows the expected death rates among a particular group at each age—that is, how many of the people in each age group may be expected to die in a given year.
Contrast with morbidity table
Mortality Table with Projection
A chart used in life insurance product design and premium pricing showing mortality rates that an insurer has modified by multiplying them by a chosen percentage.
Mortgage
A loan secured by a pledge of specified real property.
Mortgage Redemption Insurance
A plan of decreasing term life insurance designed to provide a death benefit amount that corresponds to the decreasing amount owed on a mortgage loan.
Motor Vehicle Record (MVR)
In the United States, a record that typically contains information about a person's driving history, including information about traffic violations and arrests and convictions for driving-related incidents.
Movement of Securities Return
A statement that each federally-licensed insurer in Canada must file every six months with the Office of the Superintendent of Financial Institutions (OSFI). The statement lists all of the securities that the insurer bought and sold during the preceding six-month period and all of the insurer's loans, including its policy loans, for that period.
Moving Average Market Method
An accounting process in which an insurer in Canada systematically adjusts unrealized gains or losses that result from changes in the current market value of equity investments over a period of years.
MPP
MRDs
MSA
Multiple Employer Group
A type of group that generally is eligible for group insurance coverage and that consists of employees of (1) two or more employers, (2) two or more labor unions, or (3) one or more employers and one or more labor unions.
Multiple-Line Agency (MLA) System
An agency-building insurance distribution system that uses full-time career agents and agent-brokers to distribute life, health, and property/casualty insurance products for a group of affiliated insurance companies. The MLA system offers a more comprehensive product line than the ordinary system.
See also agency-building distribution system.
Mutual Benefit Method
A method used in the past to fund life insurance in which the participating members of a mutual benefit society agreed to pay an equal, specific amount of money after the death of any other member. Also known as post-death assessment method.
Mutual Fund
An account established by a financial services company that combines the money of many people and invests it in a variety of financial instruments.
Mutual Insurance Company
An insurance company that is owned by its policyowners.
Contrast with stock insurance company.
