Glossary of Terms

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Abatement
The diminishing or the entire doing away of anything, as in an abatement of taxes.

Absolute Assignment
A policy assignment under which the assignee receives full control over the policy and full rights to its benefits. As a general rule, when a policy is assigned to secure a debt, the insured retains all rights in the policy in excess of such debt, even though the assignment is absolute in form.

Accrual basis of accounting
A method of accounting which attempts to match revenues with expenses by recognizing revenue when a service is rendered and expense when the liability is incurred irrespective of the receipt or disbursement of cash.

Accrued benefit cost method
A method of determining pension benefit costs under which the actuarial costs are based directly upon benefits accrued to the date of cost determination. Such benefits are determined either by the terms of the plan or by some assumed allocation of total prospective benefits to years of service. When the annual cost of the plan for a given year is calculated, the method assumes that a precisely determinable unit of benefit is associated with that year of a participant's credited service.

Actuarial cost method
In pension plans, a technique for establishing the amount and incidence of normal costs, supplemental costs, and actuarial liabilities pertaining to benefits and expenses. Actuarial cost methods involve valuation techniques used to determine the proper charges against annual operating techniques and to measure the liabilities of the pension plan at any given date.

Actuary
A professional person trained in mathematics, statistics, and accounting and the principles of operation of insurance, annuities, and retirement plans. The actuary determines, on the basis of existing experience, the estimated costs of future losses.

Adjustable life insurance
Insurance that combines features of both term and whole life coverage, whereby the insured may obtain the amount of insurance desired for the premium he or she can best afford, the length of coverage and amount of accumulated cash value being the variable factors.

Adjustable premium
The contractual right of the company to modify premium payments under certain specified conditions. It also refers to the policyowner's right to change scheduled premiums in certain interest-sensitive products.

Adjusted earnings
Net earnings from an insurer's operations, plus the estimated value of additional insurance in force or of the growth in premiums written.

Aggregate method
The aggregate subcategory of projected benefit cost methods assumes that the excess of total present value of projected benefits over the sum of plan assets (including assets held by funding agencies and reserves held by the employer as represented by pension liabilities shown on the firm's balance sheet) and the unfunded part of any supplemental liability, will be distributed over future years as a level amount or percentage of total earnings in respect of all covered employees, without identifying any part of such future cost accruals with the projected benefits of specific individuals.

Amortization:
The act or process of extinguishing a debt or other liability, usually by equal payments made at regular intervals that will reduce the outstanding debt to zero at the end of a given period of time.

Annuity
A stipulated sum payable at certain regular intervals during the lifetime of one or more persons or payable for just a specified period; also, the contract providing such an arrangement.

Bankruptcy
A legal proceeding ordering the distribution of an insolvent person's property among creditors, thus relieving this individual of all liability to these creditors, even though this payment may be less than the full obligation to them.

Beneficiary
The person to whom the proceeds of a life or health insurance policy are payable when the insured dies. There are three types of beneficiaries: Primary beneficiaries are those first entitled to the proceeds; secondary beneficiaries are entitled to proceeds only if no primary beneficiary is living when the insured dies; tertiary beneficiaries are those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies. Secondary and tertiary beneficiaries are also referred to as alternate or contingent beneficiaries, since their claims are contingent on the deaths of the primary beneficiaries.

Blue Cross
An independent membership association operating on a service basis and providing protection against the costs of hospital care. Benefit payments are made directly to the hospital. Benefits vary among various Blue Cross associations. Blue Cross plans are usually established on a group basis. However, individual enrollment is sometimes permitted, and plans of community enrollment are undertaken in some localities. Blue Cross plans are usually (but not always) organized under special state legislation.

Blue Shield
The familiar title for the Associated Medical Care Plans, an independent membership association cooperating with Blue Cross and providing protection against the costs of surgery, doctors, and other items of medical care. Benefit payments are made directly to the doctor, not to the policyowner.

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