Life Insurance Glossary provided by LOMA's Glossary of Insurance and Financial Services Terms
A program sponsored by the National Association of Insurance Commissioners (NAIC) in the United States to provide a method for states to demonstrate that their solvency regulation systems meet specified minimum standards so that other states can be confident those regulatory systems are adequate and effective.
A form that state insurance departments use to provide the National Association of Insurance Commissioners (NAIC) with information about complaints received from consumers about insurers.
A type of homeowner's insurance policy that covers losses caused only by specific perils named in the policy.
Rules adopted by the National Association of Securities Dealers (NASD) to define how members and their registered principals and representatives must conduct their business.
An examination administered by the National Association of Securities Dealers (NASD) that tests knowledge of securities transactions. In U.S. insurance companies, all personnel who sell variable insurance products must pass the Series 6 examination.
A private, nonprofit association of insurance commissioners from all 50 states and the District of Columbia that promotes uniformity of state insurance regulation within the United States. The NAIC adopts model bills and regulations which each state can choose to adopt, use as the basis for its own laws and regulations, or ignore altogether.
In the United States, a nonprofit organization of securities brokers and dealers that promotes fair and ethical practices in the securities business.
A commercial bank that operates under a charter granted by a federal regulatory agency and is subject to regulation and supervision by federal regulators.
An organization in the United States that was formed to help educate state legislators on insurance issues, improve the quality of state insurance regulation, make insurance more affordable, and work to ensure that insurance regulation remains with the states.
In the United States, an organization to which most state guaranty associations belong; its primary function is to facilitate communications among the various state guaranty associations.
See also guaranty association.
An organization that serves as a middleman for the electronic transmission of data between issuers of securities and retail sellers of securities. The NSCC is the most widely used securities clearinghouse for variable annuities and is a dominant presence in the field of transaction clearing for stocks, bonds, and mutual funds.
See net asset value.
The sales process of developing a detailed personal and financial picture of a customer in order to evaluate the customer's financial needs.
An insurer's exposure to financial loss under a given life insurance policy. The difference between the face amount of a life insurance policy—other than a universal life policy—and the policy reserve the insurer has established at the end of any given policy year.
A monetary amount equal to the present value of future periodic payments under an annuity contract, calculated on a net basis, without any specific provision for expense loading.
The value of one share in a mutual fund.
In accounting, an increase or decrease in cash during an accounting period.
Net GAAP Reserves
An insurer's reported GAAP reserves minus deferred acquisition costs (DAC). Net GAAP reserves are similar to modified statutory reserves in that both net GAAP reserves and modified statutory reserves represent the insurer's contractual reserve liabilities modified by an allowance for the high cost of first-year expenses.
See also GAAP Accounting Records and deferred acquisition costs.
Net Income
For a business organization, any money that remains from the company's sales revenues after deductions have been made for sales costs, operating expenses, and taxes. Also known as profit, profit margin, and spread.
Contrast with net loss.
Net Level Annual Premium (NLAP)
In insurance product pricing, one premium in a stream of equal annual payments all having a present value equal to a given net single premium.
See also net single premium.
Net Loss
For a business organization, the amount of a company's expenses (sales costs, operating expenses, and taxes) for a reporting period that exceeds its revenues for the period.
Contrast with net income.
Net Payment Cost Comparison Index
A cost comparison index used to compare life insurance policies that takes into account the time value of money and that measures the cost of a policy over a 10- or 20-year period assuming the policyowner pays premiums over the entire period.
Contrast with surrender cost comparison index.
Net Premium
The amount of money an insurer needs to receive for an insurance policy in order to provide for a product's expected cost of benefits. No loading for expenses is added to this amount.
Net Reserve
For an insurance company, any reserve that is developed without explicitly taking into consideration an insurer's product-related expenses. A reserve developed using a net reserve valuation method.
Contrast with gross reserve.
Net Reserve Valuation Method
A method of computing reserves which does not make explicit provision for product-related expenses or loading.
Net Single Premium (NSP)
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
In a reinsurance arrangement, a process by which a ceding company subtracts the claim amount owed to it by a reinsurer from the amount that the ceding company owes the reinsurer for premiums.
Network
In a managed health care plan, the health care providers with which the managed care plan negotiates fees and contracts for services.
See also managed health care plan.
Newborns' and Mothers' Health Protection Act of 1996
In the United States, federal legislation that requires group health plans offering coverage for hospital stays related to childbirth to provide coverage for at least a minimum number of days.
New Business
For insurance purposes, the general term used to describe all the activities required to market insurance, submit applications for insurance, evaluate the risks associated with those applications, and issue and deliver insurance policies.
New Business Strain
See surplus strain.
New Money Method
An accounting method that insurers use for deferred annuities that credits the account with the interest rate that is in effect at the time of each premium payment, so that different interest rates are credited to various portions of the money in the annuity account.
Contrast with portfolio method.
NLAP
NOLHGA
No-load Fund
A mutual fund that does not charge a sales commission when shares are bought.
See also back-end load and front-end load.
No-load Policy
Life insurance policies or annuities for which an insurer makes no deduction from premium payments for charges or policy issuance.
Nominal Account
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 Assets
Assets that are reported separately from admitted assets 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 assets.
Nonadmitted Income
For insurers in the United States, income that is overdue for more than a specified period—such as three months to two years—as prescribed by state insurance laws.
Nonadmitted Insurer
Nonagency Building Distribution System
A type of insurance sales distribution system in which the insurer does not train, finance, or provide office facilities or support for the salespeople. The two most common types of nonagency building systems are the personal-producing general agency (PPGA) system and the brokerage distribution system. Also known as third-party distribution system.
Contrast with agency-building distribution system.
Noncancellable and Guaranteed Renewable Policy
An individual health insurance policy, which stipulates that, until the insured reaches a specified age (usually age 65), the insurer will not cancel the coverage, increase the premiums, or change the policy provisions as long as the premiums are paid when due. Also known as noncancellable policy.
Contrast with guaranteed renewable policy.
Noncontractual Reserve
An insurer's business obligations that are not directly attributable to paying benefits for a specified product.
Noncontributory Plan
(1) A group insurance plan under which insured group members are not required to contribute any part of the premium for the coverage. The premiums are paid entirely by the employer or group policyholder and all eligible group members are automatically provided with coverage. (2) Retirement plans that do not require plan participants to make contributions to fund the plan.
Contrast with contributory plan.
Noncurrent Assets
Nonduplication of Benefits Provision
Nonforfeiture Options
The various ways in which a contract owner may apply the cash surrender value of an insurance or an annuity contract if the contract lapses. In the United States, the typical nonforfeiture options for life insurance are the cash payment option, the extended term insurance option, and the reduced paid-up insurance option.
See also cash payment option, cash surrender value, extended term insurance option, andreduced paid-up insurance option.
Nonguaranteed Elements
The premiums, benefits, values, credits, or charges under a life insurance policy that are not guaranteed or not determined when the policy is issued.
Nonmedical Application
An application for insurance in which the proposed insured is not required to undergo a medical examination. However, a nonmedical application typically does contain questions that the proposed insured must answer about his or her health.
Nonmedical Limits
The total amounts of insurance that an insurer will issue to an applicant without requiring a paramedical or medical examination.
Nonmedical Supplement
Nonnatural Person Rule
In the United States, a federal income tax rule which states that interest credited each year is currently taxable if the owner of a deferred annuity is a nonnatural person (for example, a corporation, partnership, or trust) not acting as an agent for a natural person, and if any premiums were paid after February 28, 1986.
Nonpar Policy
Nonparticipating Policy
A type of insurance policy under which the policyowner does not share in the insurance company's divisible surplus by receiving policy dividends. Also known as nonpar policy.
Nonpreferred Provider
A health care provider who has not entered into a preferred provider arrangement with a health care insurer.
Nonproportional Reinsurance
A type of reinsurance in which neither the reinsurer nor the ceding company knows in advance what share of a risk the reinsurer will ultimately assume.
See also ceding company and reinsurer.
Nonqualified Annuity
A type of annuity that does not receive all of the U.S. income tax advantages afforded qualified annuities.
Contrast with qualified annuity.
Nonqualified LTC Plan
In the United States, a long-term care (LTC) plan issued after 1996 that does not meet the tax benefit requirements of the Health Insurance Portability and Accountability Act (HIPAA).
Nonqualified Retirement Savings Plan
In the United States, a retirement savings plan that does not meet the legal requirements necessary to qualify for favorable federal income tax treatment. In Canada, similar plans are known as nonregistered retirement savings plans.
Nonregistered Retirement Savings Plan
Nonresident Corporation
Nonresident License
In the United States, an insurance license issued by a state insurance department to an individual who resides in, and is licensed by, another state.
Nonsufficient Funds (NSF) Checks
Checks that cannot be honored by the issuing financial institution because the checking account holder did not have enough money in his or her checking account to pay the amount of the check. Also known as bounced checks.
Non-term Group Life Coverage
A group policy or individual policies of certain types of permanent life insurance issued to members of an employer group or other permitted group where the following criteria are met: (1) every plan of coverage was selected by the employer or other group representative; (2) some portion of the premium is paid by the group or through payroll deduction; and (3) group underwriting or simplified underwriting is used.
Normal Balance
In accounting, the side of an account, whether debit or credit, to which increases to the account are recorded.
Normal Retirement Age
For a pension plan, the earliest age at which an eligible participant can retire with full benefits.
Notice of Claim Provision
An individual health insurance policy provision that requires written notice of a claim to be given to the insurer within 20 days after the occurrence or commencement of a covered loss or as soon thereafter as is reasonably possible.
Notice of Expiry
A document that a reinsurer uses to notify the ceding company 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 ceding company.
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.
Notice Regarding Replacements
A written document that both an applicant for an insurance policy or an annuity and the sales agent must sign and submit along with the application when that policy will replace an existing one. The document gives the applicant general information about the potential effect of a replacement and advises the applicant to get all the relevant facts before making a replacement.
See also replacement.
NSCC
NSF checks
NSP
Numerical Rating System
In life insurance underwriting, a risk classification method in which each medical and nonmedical factor is assigned a numerical value based on its expected impact on mortality.
Numeric Summary
The part of a life insurance basic illustration that provides a brief overview of the amounts of a policy's death benefits, policy values, and premium outlays and contract premium (as applicable) for certain policy years. In the United States, the National Association of Insurance Commissioners (NAIC) Life Insurance Illustrations Model Regulation requires the numeric summary to follow the narrative summary in a basic illustration.
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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