W_Glossary 2 Flashcards
Terminal Bonus
A terminal bonus is a bonus that may be payable on maturity, death or surrender of a with profits contract. It is typically a percentage, varying with duration in force and possibly with the original policy term, of attaching regular reversionary bonuses and/or sum assured under a conventional with profits contract, or of the accumulated benefit (allocated premiums, less any charges, plus regular bonuses added to date) under an accumulating with profits contract.
Smoothing
A with profits policy normally invests in equities and property, resulting in more variable returns than if it were invested in lower risk investments. Instead of paying out the exact asset share, with profits funds aim to even out some of the variations in investment performance. profits and losses are spread from one years to the next so that, in total, all the investment surplus are paid out in the long term.
The effect is a reduction in investment risk for the policyholder.
As well as smoothing of investment returns over time, life insurance companies also smooth payouts across individual policies at any point in time. This reflects the pooling effect of insurance and the practicalities of bonus setting.
Pre existing conditions expclusion
This is an exclusion use din non - underwritten health care contracts (e.g. critical illness insurance). Under the terms of the exclusion, cover is not provided in respect of any critical illness listed in the policy that the life insured has already suffered, i.e. where the condition existed before the commencement of the cover. It is also usual to exclude cover for any critical illness where the life insured has previously suffered from a medical condition that gives a greater risk of a particular critical illness occurring.
Policyholder reasonabe expectations
This relates to policyholders reasonable expectations with regards to the amount of benefits or charges under contracts where these are at the discretion of the life insurance company.
There is no generally accepted definition of PRE, but they will be influenced by e.g. the past practice of the company and any literature it has issued (as well as what competitors / the market is doing).
The concept of PRE is linked to the idea of treating customers fairly. In some jurisdictions, there may be a statutory requirement placed on an insurer to meet minimum standards in this respect.
Types of genetic tests
A genetic test can be predictive or diagnostic:
Predictive genetic test is taken prior to the appearance of any symptoms of the genetic condition in question
Diagnostic test is taken to confirm a diagnosis based on existign symptoms
Long term care insurance
This type of insurance can be used to help provide financial security against the risk of needing either home or nursing home careas an elderly person, i.e. post retirement.
The contract could pay for all the costs of care throughout the remainder of life (an indemnity contract), or could provide a cash lump sum or annuity to contribute towards the costs of care.
Non unit reserve
A company will have non-unit liabilities under its unitised contracts (e.g. the expenses of managing the business) for which it receives monetary payments in the form of the future charges it extracts from the unit account. If it expects that the charges will not be sufficient to meet these liabilities at any point on a cash flow basis , it has to hold a non unit reserve to provide for the deficiency.
Depending on the regulatory regime and any related constraints, it may be possible for a life insurance company to hold la negative non unit reserve where it expects that future charges will be more than sufficient to meet the future non unit liabilities.
Paid up policy
This is a regular premium policy under which no further premiums are payable and sufficient premiums have been paid such that benefits are paid on claim even without the payment of further premiums. It normally arises because the policyholder decides not to pay any further premiums, in which case the company would reduce the benefits under the contract allowing for the actual premiums paid.
Under some regular premium policies, premiums may be contractually payable for a shorter term than the term of the contract. When the premium paying term has expired, such policies are sometimes referred to as “fully paid up”.
Accelerated critical illness benefit
This benefit is provided when a policy pays the sum insured upon death or diagnosis of a critical illness, whichever occurs first. If the life insured suffers a critical illness, then the sum insured is paid and the policy is terminated, i.e. payment of the benefit is “accelerated” forward from payment on death.
Some policies accelerate a portion of the sum insured in which case the contract says in force and pays the balance of the sum insured upon subsequent death. Most policies accelerate 100% for the sum insured.
Actuarial Control Cycle
A systematic method of planning, managing and reviewing an insurance company’s business in the face of the risk undertaken by the insurer. Having modeled and made assumptions about the risks, the actual experience is reviewed in order to add insight into the future modelling and management of the existing and new business.
The control cycle can be applied at both macro and micro levels of the insurance business.
