T_Glossary 6 Flashcards
Bonus earning capacity
The bonus earning capacity of a block of contracts is the rate (s) of bonus that those contracts can sustain over their future lifetime, on the basis of a set of assumptions with regard to future experience.
Commission
Commission refers to the payments made by a life insurance company to reward those who sell and subsequently service its products, whether they be independent financial intermediaries, tied agents or a direct sales force.
Typically, the amount of the commission depends on the type and size of the contract. It can be paid when a contract is taken out (initial) and/or over the duration of the contract (renewal) as a proportion of the premium of the fund size.
Contribution method
This is the most common method of distributing surplus in the countries of the Pacific rim (Americas) and involves the payment of a cash dividend to with profits policyholders.
Conventional contracts
A conventional contract typically has benefits that are initially set at the start of the contract, based on the premium paid. In the case of conventional with profits contracts, additional benefits may be paid on top of these base benefits if investment returns have been sufficient.
Critical Illness
This term can be used to refer to the type of contract that provides benefits on the diagnosis of a critical illness, or to the specific illnesses covered under such contracts. These illnesses are defined by the insurer, and may cover conditions such as cancer, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke.
The illnesses of conditions are typically perceived by the public to be serious (life threatening or lifestyle threatening) and to occur frequently.
deferred period
This is a term most often encountered in IP insurance. The meaning is given as “the period of incapacity before any benefit is paid”.
Discounted payback period
the discounted payback period is hte policy duration at which the profits that have emerged up to that point in time have apresent value of zero.
Therefore, it is the time it takes for a company to recover its initial investment with interest ate the risk discount rate.
Embedded value
This is part of the appraisal value of a proprietary life insurance company. It represents the value of the future profit stream from the company’s existing business together with the value of any net assets separately attributable to shareholders.
Equity
In essence, it means that all policyholders are treated fairly. That is, that some groups of policyholders do not benefit at the expense of other groups. In a proprietary company, equity also needs to be considered between policyholders and shareholders.
Questions of equity arise in the distribution of surplus, in the determination of variable charges, in the determination of surrender values and alteration terms and in unit pricing.
estate
The estate for a life insurance company usually refers to the excess of the realistic value of its assets over the realistic value of its liabilities.
