Life Insurance Glossary provided by LOMA's Glossary of Insurance and Financial Services Terms
Ratchet Method
See annual reset method.
Rated Policy
An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.
Rate of Return
Investment earnings expressed as a percentage relative to the invested principal.
See also principal.
Rate Transmittal
In group insurance, a document that is attached to a Request for Proposal that specifies the agent's proposed rates for each type of insurance coverage for each class of employees.
See also Request for Proposal.
Rating
During the underwriting process for insurance, the act of approving an application on a basis other than the basis for which the policy was applied for, including actions such as approving the application at a higher premium rate than applied for or with less coverage than applied for. The resulting policy is said to be a rated policy.
Rating Agency
In the insurance industry, an independent organization that evaluates the financial condition of insurers and provides information to potential customers of and investors in insurance companies.
Rating Downgrade
A reduction in an insurer's quality rating. A downgrade often leads to a run on assets.
Contrast with rating upgrade.
See also quality rating.
Rating Upgrade
An increase in an insurer's quality rating. A rating upgrade is viewed as a sign of increased financial strength.
Contrast with rating downgrade.
See also quality rating.
Ratio
A comparison of two numeric values that results in a measurement expressed as a percentage or a fraction.
See financial ratio.
RBC Ratio Requirements
Readability Requirements
Insurance laws that require insurers to reduce the amount of technical jargon and legal language included in insurance and annuity contracts.
Real Estate
Land or anything attached to the land.
Contrast with personal property.
Realization Principle
An accounting concept which states that a company should recognize revenue when it is earned, regardless of when the company receives the actual payment, so long as a legal and reasonable expectation exists that the customer will remit payment in full.
Reasonable and Customary Limits
A restriction insurers include in medical expense policies which specifies that the amount paid for a claim must conform to the amount most frequently charged for a medical procedure in a given geographical area.
Rebating
An insurance sales practice in which an insurance agent offers a prospect an inducement, such as a cash payment, to purchase an insurance policy from that agent. The practice of rebating is prohibited in most states.
Recapture
A process by which a ceding company takes back from a reinsurer some or all ceded business.
Recapture Provision
In a reinsurance arrangement, a contractual provision that permits the ceding company to end or modify the reinsurance arrangement by taking back from the reinsurer some or all ceded business.
Receivable
A type of short-term asset representing an outside party's promise to pay cash to the holder of the asset.
Receivables for Agents' Debit Balances
A short-term asset based on agents' obligations to an insurer.
Receivables Purchase Agreement
A contract through which short-term assets known as receivables are sold for cash.
Receiver
In the United States, the insurance commissioner, or someone acting on the commissioner's behalf, who is responsible for formulating a plan to distribute an impaired insurer's assets and for making sure that the insurer's obligations to customers are fulfilled to the greatest extent possible. Also known as conservator.
Receivership
In the United States, a legal condition under which a state insurance commissioner takes control of and administers a financially impaired insurer's assets and liabilities. Also known as conservatorship.
Reciprocal Method
In accounting, a cost allocation method that fully recognizes the services that service departments perform for each other.
Reciprocity
A reinsurance arrangement in which certain insurers and reinsurers agree to cede business to each other and assume risk from each other.
Recording Method
A method of changing the beneficiary of a life insurance policy under which the change is effective when the policyowner notifies the insurer in writing of the change.
Contrast with endorsement method.
Recording of Transactions as Executed
In accounting, when a company records all authorized and executed transactions in the correct accounting period, in the correct accounts, and in the correct monetary amounts.
Recurring Disability
In disability income insurance policies, a type of disability that is the result of the same cause as for an original disability and that reappears after the original period of disability and an intervening period of recovery.
Redlining
A prohibited practice in which an insurer refuses coverage to an applicant, or cancels an insured's existing coverage, solely because of the applicant's or insured's geographic location.
Reduced Paid-up Insurance Option
One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with cash values to discontinue premium payments and to use the policy's net cash value to purchase paid-up insurance of the same plan as the original policy.
Reduction Provision
An insurance policy provision that reduces the amount of the benefit payable for a specified loss.
See limitation.
Reexamination
In the United States, a regulatory examination of an insurance company that is conducted as a follow-up to a comprehensive or target examination and that is designed to determine whether the insurer has complied with recommendations or directives contained in a previous examination report.
Referred Lead
In sales, the name of a prospect that a client has given to a sales person or agent.
Refinance
An action taken by borrowers when they repay their debt before repayment is due in order to make new borrowing arrangements at lower interest rates.
Refund Annuity
Refund Life Income Option
A method of receiving life insurance policy proceeds under which the insurer uses the policy proceeds to purchase a life income with refund annuity for the beneficiary/payee.
Regional Office
An insurance company office that is charged with many of the same functions and operations as the company's home office but that is geographically closer to the market it serves and generally reports to the home office.
See also home office.
Registered Plan
In Canada, a private retirement plan that meets the legal requirements to receive favorable federal income tax treatment.
Registered Principal
An officer or manager of a National Association of Securities Dealers (NASD) member, who is involved in the day-to-day operation of the securities business, has qualified as a registered representative, and has an NASD Series 24 or 26 registration.
Registered Representative
A sales representative or other person who has registered with the National Association of Securities Dealers (NASD), disclosed the required background information, and passed one or more NASD examination. A registered representative engages in the securities business on behalf of a NASD member by soliciting the sale of securities or training securities salespeople.
Registered Retirement Savings Plan (RRSP)
A Canadian retirement account that is similar to individual retirement accounts in the United States and that allows individuals or their spouses (not employers) to make tax-deductible contributions, subject to specified maximum amounts, for the purpose of accumulating money for retirement.
Registration Statement
A written statement containing detailed information about a security and the issuer of that security, including specified financial statements.
Regular Ordinary (RO) Life Insurance
Ordinary life insurance products sold through the home service insurance distribution system.
Regulation 60
A New York state insurance regulation designed to protect consumers against replacements that are not in the consumers' best interests.
See replacement.
Regulations
Rules or orders that are issued by administrative agencies and that have the force of law.
Regulatory Compliance
See compliance.
Regulatory Information Retrieval System (RIRS)
A database maintained by the National Association of Insurance Commissioners (NAIC) that contains information on insurance companies and individuals who have been the subjects of regulatory or disciplinary actions.
Rehabilitation
(1) In disability income insurance, the process of helping a disabled person return to work, either at her own occupation or at another occupation if she is unable to perform the duties of her own occupation
(2) In insurer insolvencies in the United States, a court-ordered process intended to restore a financially troubled company to a financially sound basis—the financially impaired insurer continues to operate and to exist.
Contrast with liquidation.
See receivership.
Reimbursement Benefits
Reinstatement
The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or continued as extended term or reduced paid-up coverage.
Reinstatement Provision
A provision in an individual life insurance, health insurance, or annuity policy that describes the conditions a policyowner must meet for the insurer to reinstate such a policy.
See reinstatement.
Reinsurance
A transaction between two insurance companies in which one company—the ceding company—transfers some of its insurance risk to another company—the reinsurer. The reinsurer agrees to reimburse the ceding company for covered losses claimed under the policies that have been reinsured according to the terms of the reinsurance agreement.
See ceding company and reinsurer.
Reinsurance Allowance
In a reinsurance agreement, the payment from a reinsurer to a ceding company that represents a share of the ceding insurer's acquisition expenses and maintenance expenses for items such as commissions, underwriting costs, policy issue costs, and premium taxes.
Reinsurance Audit
A formal examination of an insurer's reinsurance records to evaluate whether those records contain accurate details and that ensures that both parties to a reinsurance agreement understand and have complied with the terms of the agreement.
Reinsurance Broker
Reinsurance Certificate
In a reinsurance arrangement, the document that notifies the ceding company that reinsurance is officially in force.
Reinsurance Company
See reinsurer.
Reinsurance Effective Date
The date upon which the reinsurance coverage for a specific risk takes effect.
Reinsurance Intermediary
A third party that acts as a go-between for a ceding company and a reinsurer in effecting a reinsurance transaction. A reinsurance intermediary helps ceding companies find appropriate coverage for large-amount and unusual cases and can arrange for sufficient reinsurance from multiple reinsurers if no single reinsurance company will accept the entire risk. Also known as reinsurance broker.
Reinsurance Pool
In a reinsurance arrangement, a group of two or more reinsurers who accept risk from a given insurer.
Reinsurance Premiums
In indemnity reinsurance, premiums paid by a ceding company to a reinsurer for reinsurance coverage.
Reinsurance Recoverable
A type of account receivable that is recorded in an account titled amounts recoverable from reinsurers. This receivable represents a balance that a reinsurer owes to the insurer, usually for health insurance or another indemnity line of business.
Reinsurance Treaty
A formal written agreement that is negotiated and signed by a ceding company and a reinsurer and that establishes the terms and conditions by which risk can be submitted for reinsurance.
Reinsurer
An insurance company that, for an exchange of value, such as a payment, accepts insurance risks transferred from another company—the ceding company—in a reinsurance transaction. Also known as assuming company.
See also ceding company.
Release
A written document that a recipient of life insurance policy proceeds must sign prior to receiving the policy's proceeds which states that the claimant has received full payment of his claim and that he gives up any and all claims that he has or might have against the insurer as a result of that policy.
Relevance
In accounting, the quality of accounting information that requires a company's accounting information to be useful, timely, and likely to affect an interested user's decisions.
Reliability
In accounting, the quality of accounting information that requires a company's accounting records and financial statements to present accurate, objective information that is free from bias and misrepresentation.
Renewable Term Insurance Policy
A term life insurance policy that gives the policyowner the option to continue the coverage at the end of the specified term without presenting evidence of insurability, although typically at a higher premium based on the insured's attained age.
Renewal Commission
A sales commission paid to an insurance sales agent for a specified number of years after the first policy year on policies that the agent sold. The renewal commission rate is generally lower than the first-year commission rate.
Renewal Expenses
See maintenance expenses.
Renewal Premium
Any insurance policy premium payable after the initial premium.
Renewal Provision
(1) A term life insurance policy provision that gives the policyowner the right, within specified limits, to continue the coverage for an additional policy term without providing evidence of insurability.
(2) An individual health insurance policy provision that describes the circumstances under which the insurer has the right to refuse to renew or the right to cancel the coverage and the insurer's right to increase the policy's premium rate.
Renewal Underwriting
For group insurance plans, a type of underwriting in which the underwriter reviews all the risk assessment factors considered when the group was originally underwritten and all changes in the group and its coverage between the previous underwriting and the current time.
Replacement
In insurance, a transaction that occurs when a policyowner surrenders an insurance policy or part of the coverage of a policy in order to buy another policy. Replacements may be external or internal. An external replacement occurs when the new policy is issued by a different insurer than the one that originally issued the policy. An internal replacement is one in which the new contract is purchased from the same insurer that issued the original contract.
Replacement Cost Insurance
A type of homeowners' insurance that pays the policyowner the full cost of replacing the lost or damaged property, subject to a maximum amount.
Replacement of Life Insurance and Annuities Model Regulation
In the United States, a National Association of Insurance Commissioners (NAIC) model regulation that applies to life insurance policies and annuities that are being replaced and that is designed to ensure that insurers and agents provide consumers with fair and accurate information about policies so consumers can make buying decisions that are in their own best interests.
See replacement.
Replacement Ratio
In disability income insurance, the percentage of the insured's income that a disability policy will replace.
Representation
A statement made by a contracting party that is relevant to the formation of the contract. Representations that are not substantially true will invalidate the contract.
Contrast with warranty.
Request for Proposal (RFP)
In group insurance, a document that provides detailed information about the requested coverage and requests a bid from the insurer for providing that coverage.
Required Capital
An insurance company's amount of capital and surplus to support financial obligations that arise from an insurer's existing book of business. Required capital allows the insurer to remain in business. Also known as committed capital.
Required Minimum Distributions (RMDs)
Amounts that participants in qualified retirement plans and owners of traditional individual retirement arrangements (IRAs) must begin to receive by a specified age or time. Also known as minimum required distributions (MRD).
Required Reserve
See policy reserve.
Rescission
A legal action in which a contract is declared void or cancelled. An insurer usually seeks a rescission of an insurance policy when there has been a material misrepresentation in the insurance application.
See also misrepresentation.
Reserve
See reserves.
Reserve Credit
An accounting entry used by a ceding company to record the reduction of reserves, due to the use of reinsurance, in its Annual Statement or Annual Return.
Reserve Destrengthening
For an insurance company, the act of decreasing a reserve liability amount, which results in an increase in the insurer's capital or surplus.
Contrast with reserve strengthening.
Reserves
For an insurer, liability accounts that identify the amounts of money that the insurer expects to need to meet future business obligations. Although many different types of reserves exist, insurers use the term to refer to policy reserves.
See also contingency reserve and policy reserve.
Reserve Strengthening
For an insurance company, the act of increasing a reserve liability amount, which results in a decrease in the insurer's capital or surplus.
Contrast with reserve destrengthening.
Reserve Valuation
A formal actuarial process of establishing a value for an insurer's required policy reserves.
Resident Corporation
In Canada, a company that is incorporated under Canadian law.
See also foreign corporation.
Residual Disability
In disability income insurance, a condition in which the insured is not totally disabled, but is still unable to function as before the sickness or injury, and therefore suffers a reduction in income of at least the percentage—typically 20 percent to 25 percent—specified in the disability income plan. Also known as partial disability.
Residual Disability Insurance
Resisted Claims
Claims that an insurer has thus far refused to pay but that it may pay in the future. Also known as disputed claims.
Respite Care
In long-term care (LTC) insurance, temporary care provided by a nursing home or other qualified LTC facility for an insured receiving home health care. Respite care is designed to give the primary caregiver in the home a break from the day-to-day care of the insured.
Responsibility Accounting
A system of policies and procedures that allows for revenues and expenses to be assigned to a specified employee or organizational level that is accountable for them.
Responsibility Center
The area, function, or organizational unit that a specified manager controls.
Responsibility Report
A management accounting report that itemizes budgeted and actual amounts that are under the responsibility manager's sphere of control and the corresponding variance for each revenue or cost (expense).
Restoration of Benefits Provision
A provision in a long-term care (LTC) insurance policy that allows an insured person who has used a portion of benefits available under the LTC policy to regain a full benefit period after a stated period of time has passed following the delivery of the long-term care.
Retained Earnings
The profits that a corporation holds to reinvest in the business instead of paying the money out in dividends to the corporation's owners.
Retention
See persistency.
Retention Limit
A specified maximum amount of insurance that an insurer is willing to carry at its own risk without transferring some of the risk to a reinsurer.
Retired Stock
Stock that a company had previously issued, then later repurchased at market price, with no intention of reselling the stock at a later date.
See also stock.
Retrocession
(1) A transaction by which a reinsurer cedes risks to another reinsurer, known as the retrocessionaire.
(2) The unit of insurance that a reinsurance company cedes to a retrocessionaire.
(3) The document used to record the transfer of risk from a reinsurer to a retrocessionaire.
Retrocessionaire
A reinsurer that assumes risks transferred from another reinsurer.
Retrospective Rating Arrangement
In group health insurance, a premium payment arrangement under which the insurer agrees to charge the group policyholder a lower monthly premium than it would normally charge based on the group's prior claim experience and the policyholder agrees to pay an additional amount if, at the end of the policy year, the group's claim experience has been unfavorable.
Retrospective Reserve Valuation Method
For insurance companies, a method of computing a value for a reserve liability by looking at a contract's past cash flows—its past premiums and benefits.
Contrast with prospective reserve valuation method.
Retrospective Review
In a managed health care plan, the process in which the utilization review organization reviews the necessity and quality of the medical care an insured received in a hospital following the hospitalization.
See also managed health care plan and utilization review (UR).
Return
The profit or compensation an investor earns for taking a risk.
Return of Premiums Option
In long-term care (LTC) insurance, a nonforfeiture option which provides that all or a portion of the premiums paid for the LTC coverage are returned to the policyholder.
Return on Investment (ROI)
Revenue Canada
Revenues
The amounts earned from a company's core business operations.
Revocable Beneficiary
A life insurance policy beneficiary whose right to the policy's proceeds can be cancelled or reduced by the policyowner at any time before the insured's death.
Contrast with irrevocable beneficiary.
RFP
See Request for Proposal.
Rider
An amendment or addition to a contract that either expands or limits the benefits payable under the contract. Also known as endorsement.
See also policy rider.
RIRS
Risk
The chance or possibility of loss.
Risk Assessment
In insurance underwriting, a process that involves ascertaining the degree of risk represented by each proposed insured person or group according to a range of criteria established when a specific insurance product was designed. Also known as risk selection and selection of risks.
Risk-Based Capital (RBC) Ratio Requirement
In the United States, requirements that enable state regulators to evaluate the adequacy of an insurer's capital relative to the riskiness of the insurer's operations.
Risk Class
In insurance underwriting, a grouping of insureds that represent a similar level of risk to an insurance company.
See also declined risk class, preferred risk class, standard risk class, and substandard risk class.
Risk-Return Tradeoff
An investment principle stating that the interplay between investment risk and return usually results in higher risks offering potentially higher returns, and lower risks offering potentially lower returns.
Risk Selection
See risk assessment.
Risk Tolerance
The degree to which a person is willing to accept financial risk.
RMDs
RO Life Insurance
Rolling Budget
A budget that allows a company to continually maintain projections for a specified time period into the future. Also known as continuous budget.
Rollover
A direct transfer of retirement funds from one qualified plan to another plan of the same type or to an individual retirement arrangement (IRA) that does not pass through the hands of the owner and thus does not incur any tax liability for the owner. Also known as direct rollover and direct transfer.
Roth IRA
In the United States, a type of individual retirement arrangement (IRA) that permits people within certain income limits to make nondeductible annual contributions and to withdraw money on a tax-free basis at retirement age.
Routine Checkup
In insurance underwriting, a visit to a physician that was not motivated by a symptom or health problem.
RRSP
Rules Governing Advertisements of Accident and Sickness Insurance
In the United States, National Association of Insurance Commissioners (NAIC) model regulation designed to prevent unfair, deceptive, and misleading advertising and ensure that insurers truthfully disclose the benefits provided by health insurance policies as well as any limitations and exclusions in those policies.
Rules Governing the Advertising of Life Insurance
In the United States, National Association of Insurance Commissioners (NAIC) model regulation designed to ensure that life insurance advertising materials provide full and truthful disclosure of all relevant information about a life insurance policy.
Run on Assets
A situation in which many customers at once demand to withdraw their funds from a financial institution.
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