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absolute assignment
An irrevocable transfer of complete ownership of a life insurance
policy from one party to another. See also assignment.
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accelerated
benefits
Some companies provide "accelerated benefits," also known
as "living benefits." This rider allows you, under certain
circumstances, to receive the proceeds of your life insurance
policy before you die. Such circumstances include terminal
or catastrophic illness, the need for long-term care, or confinement
to a nursing home.
Ask your agent
for information about these and other policy riders.
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accidental death
and dismemberment (AD&D) rider
A supplementary benefit rider or endorsement that provides
for an amount of money in addition to the basic death benefit
of a life insurance policy. This additional amount is payable
only if the insured dies or loses any two limbs or the sight
of both eyes as the result of an accident. Some AD&D riders
pay one half of the benefit amount if the insured loses one
limb or the sight in one eye.
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accidental death
benefit (ADB) rider
A supplementary benefit rider or endorsement that provides
for an amount of money in addition to the basic death benefit
of a life insurance policy. This additional amount is payable
only if the insured dies as the result of an accident.
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accidental means
provision
A life insurance policy accidental death benefit provision
which states that an accidental death benefit will be payable
if the insured's death was the result, directly and independently
of all other causes, of bodily injury caused solely by external,
violent, and accidental means.
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accidental result
provision
A life insurance policy accidental death benefit provision
which states that an accidental death benefit will be payable
if the insured's death was the result, directly and independently
of all other causes, of accidental bodily injury.
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accident perils
A classification used by health insurance underwriters to
evaluate the type and degree of peril represented by a particular
occupation. Accident perils include exposure to fire, the
use of dangerous machinery, the handling of heavy objects,
and the risk of falling. See also illness perils.
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accrued benefit
In a defined benefit pension plan, the amount of pension benefit
which has accumulated in a pension plan on behalf of an individual
plan participant at any particular time.
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accumulated
cost of insurance
A factor used in the calculation of life insurance reserves.
For a given group of insureds, the accumulated cost of insurance
equals the net single premium that would have to be paid at
the end of the term of coverage by the surviving insureds
to provide death benefits on the insureds who died during
the term.
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accumulated
funding deficiency
In the United States, the amount by which a qualified pension
plan fails to meet the minimum funding standards set by law.
Plans with an accumulated funding deficiency are subject to
a penalty tax and enforcement provisions. Sometimes simply
called a funding deficiency.
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accumulated
value
An amount of money invested plus the interest earned on that
money.
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accumulation
at interest option
A life insurance policy dividend option under which policy
dividends are left on deposit with the insurer to accumulate
at interest. Also called the accumulation option.
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accumulation
period
The period during which premiums are payable on a deferred
annuity.
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accumulation
units
The term used to identify ownership shares in a variable annuity's
separate-account fund. When a person pays premiums for a variable
annuity, those premiums are credited to the purchaser's account
as a certain number of accumulation units. After the accumulation
period ends, the accumulation units are used to buy annuity
units. See also annuity units.
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acquisition
expenses
See policy acquisition costs.
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actively-at-work
provision
A provision found in many group insurance contracts which
specifies that, if an employee is absent from work because
of sickness, injury, or certain other specified reasons, on
the day the employee's coverage under the contract is due
to begin, then coverage will not begin until the day the employee
returns to work.
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actuarial assumptions
(1) The mortality, morbidity, interest, expense, and other
forecasts used to calculate premium rates and reserves. (2)
In pension planning, the assumptions that actuaries make in
the areas of investment earnings, mortality, plan expenses,
salary levels, and employee turnover. These assumptions affect
the amount of the annual contribution that is necessary to
adequately fund a defined benefit pension plan.
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actuarial cost
method
For a defined benefit pension plan, a method of calculating
the annual amount a plan sponsor must contribute to fund a
given set of plan benefits for a particular group of participants.
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actuarial department
The department in a life and health insurance company responsible
for seeing that the company's operations are conducted on
a mathematically sound basis. In conjunction with other departments,
it designs and revises a company's life and health insurance
products. The actuarial department calculates premium and
dividend rates, determines what a company's reserve liabilities
should be, and establishes nonforfeiture, surrender, and loan
values. It also does the research needed to predict mortality
and morbidity rates, to establish guidelines for selecting
risks, and to determine the profitability of the company's
products.
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actuarial valuation
A determination by an actuary of the value of a pension plan's
assets and its liabilities. The valuation, which is based
on statistical probability, is used to determine if the assets
are adequate to fund the plan's liabilities. If the value
of the assets is not adequate, the plan sponsor must increase
its contributions to make up the deficiency; if the assets
are more than adequate, the plan sponsor can reduce contributions.
Also called plan valuation.
actuary
A technical expert in life insurance, particularly in mathematics.
A person in this job applies the theory of probability to
calculate mortality rates, morbidity rates, lapse rates, premium
rates, policy reserves, and other values.
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additional term
insurance option
A life insurance policy dividend option under which policy
dividends are used as a net single premium to purchase one-year
term insurance. Also called the additional insurance option
or the fifth dividend option.
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adjustable life
insurance policy
A life insurance contract designed specifically to allow the
policyowner to alter the policy's plan by changing the amount
of the coverage or the amount of the premium. The insurer
calculates the specific plan of insurance that can be provided
based on the requested death benefit and premium. Therefore,
an adjustable life insurance policy can use insurance plans
that range from a term insurance policy of short duration
to a limited-payment whole life insurance policy.
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administrative
services only (ASO)
An arrangement whereby an organization (usually an employer)
hires an outside firm to perform specific administrative services,
usually including claim administration, for a group health
insurance program. The organization retains financial responsibility
for paying claims. See also self-insured group insurance and
third-party administrator (TPA).
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admitted reinsurer
In the United States, a reinsurer which is licensed to accept
reinsurance in a given jurisdiction. Also called an authorized
reinsurer. Contrast to nonadmitted reinsurer.
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advanced underwriting
department
An insurance company home office department responsible for
providing technical and sales assistance to agents involved
in estate planning and business insurance cases. Also known
as the estate planning department.
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advance funding
A procedure in which a pension plan sponsor deposits amounts
of money in a fund during the working years of plan participants
to guarantee payment of pension benefits to the plan participants
when they retire.
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adverse selection
See antiselection.
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Age Discrimination
in Employment Act of 1967 (ADEA)
United States legislation that protects employment rights
of individuals age 40 and over. ADEA prohibits age-based firings
and generally prevents employers from forcing employees to
retire at age 65. In relation to pension plans, ADEA prohibits
employers from discontinuing contributions or benefit accruals
to an individual's pension plan after that person reaches
age 65.
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agency
The legal relationship between an agent and a principal. See
agency relationship.
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agency agreement
An agreement between a principal and an agent that describes
the scope of the agent's actual authority. See agent and principal.
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agency bank
A mutual savings bank that does not sell its own savings bank
life insurance policies to the public but, instead, sells
such policies as an agent for an issuing bank. An agency bank
only accepts applications, collects premiums, and provides
service for its policyowners. See also issuing bank and savings
bank life insurance (SBLI).
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agency by appointment
An agency relationship that is created when a principal appoints
an agent to act on the principal's behalf. See agency relationship.
Contrast with agency by ratification.
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agency by ratification
An agency relationship that is created when the principal
ratifies a purported agent's unauthorized act. See agency
relationship. Contrast with agency by appointment.
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agency relationship
In law, the relationship between two parties by which one
party, the agent, is authorized to perform certain acts on
behalf of the other party, the principal.
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agency system
A distribution system in which insurance companies use their
own commissioned agents to sell and deliver insurance policies.
The agency system is the most common system for distributing
individual life insurance products and includes the branch
office distribution system and the general agency distribution
system. Also called the ordinary agency system. See also branch
office distribution system, brokerage distribution system,
and general agency distribution system.
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agent
A party who is authorized by another party, the principal,
to act on the principal's behalf in contractual dealings with
third parties. Called a mandatary in Quebec. See also insurance
agent.
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agent-brokers
Career agents who place business with companies other than
their primary companies. Also known as agents of other companies,
surplus brokers, or simply brokers.
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agent of record
The agent or broker who is recognized by the insurer as the
person to whom the commission is to be paid.
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agent-owned
reinsurance company (AORC)
A captive reinsurance company formed by an insurance company
and owned by a group of the company's agents. The company
insures all business written by those agents with the captive
so that the agents can share in the profits of their own labor.
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agent's statement
The portion of the insurance application in which the agent
reports anything he or she knows or suspects about the proposed
insured that is not reported by the applicant or proposed
insured.
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age of majority
The age at which a person has the legal capacity to enter
into and be bound by a contract.
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aggregate funding
methods
Pension plan funding methods in which the amount of contributions
necessary to fund a plan is determined in the aggregate for
all plan participants, rather than separately for each individual
plan participant. Contrast with individual funding methods.
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aggregate mortality
table
A mortality table based on the experience of all insured lives,
including mortality rates both during and after the select
period. The mortality rates of an aggregate mortality table
fall between those of the select and the ultimate mortality
tables. See also mortality tables, select mortality table,
select period, and ultimate mortality table.
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aleatory contract
A contract under which one party provides something of value
to another party in exchange for a conditional promise, which
is a promise that the other party will perform a stated act
if a specified, uncertain event occurs. Insurance contracts
are aleatory because the policyowner pays premiums to the
insurer, and in return the insurer promises to pay benefits
if the event insured against occurs.
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alien corporation
In the United States, a company that is incorporated under
the laws of another country. Compare to domestic corporation
and foreign corporation.
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alienation of
benefits
In pension planning, the assignment of a plan participant's
benefits to an individual other than the participant. In the
United States, ERISA generally prohibits the alienation of
benefits, although exceptions to this rule include the use
of a participant's vested benefit as collateral for a loan.
The ERISA prohibition on alienation of benefits prevents creditors
from attaching an individual's pension benefits.
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all-causes deductible
In health insurance, a deductible which need only be satisfied
once during a given period of time. If the period of time
is a calendar year, as it usually is, then this type of deductible
is known as a calendar year deductible. Contrast with per-cause
deductible.
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allocated funding
A method of funding a pension plan in which a portion of the
total plan funds is allocated to each participant. This type
of funding is often achieved through the purchase of annuities
or insurance contracts for each participant. Contrast with
unallocated funding.
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American Council
of Life Insurance (ACLI)
In the United States, an organization which collects and disseminates
data on life insurance markets.
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Annual Information
Return
In Canada, a report containing financial and other information
that pension plans must file annually with the appropriate
provincial or federal government.
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annually renewable
term (ART) insurance
See yearly renewable term (YRT) insurance.
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Annual Report
Form 5500
In the United States, a detailed report of membership and
financial information pertaining to the operation of a pension
plan. This report must be filed annually with the Internal
Revenue Service.
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Annual Statement
An accounting report that insurers must file each year with
the appropriate regulatory agency. This report contains detailed
accounting and statistical data that regulators use to evaluate
a life and health insurance company's solvency and its compliance
with insurance laws.
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annuitant
(1) The person designated to receive annuity payments. (2)
The person whose lifetime is used as the measuring period
to determine how long benefits are payable under a life annuity.
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annuity
(1) A series of payments made or received at regular intervals.
(2) A contract that provides for a series of payments to be
made or received at regular intervals. There are many kinds
of annuities. For the annuities identified in this glossary,
see annuity certain, annuity due, annuity immediate, deferred
annuity, deferred life annuity, disabled life annuity, flexible
premium annuity, group deferred annuity, immediate annuity,
joint and survivor annuity, level premium annuity, life annuity,
life annuity with period certain, refund annuity, single premium
annuity, single premium deferred annuity (SPDA), straight
life annuity, temporary life annuity, temporary life annuity
due, variable annuity, whole life annuity, and whole life
annuity due.
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annuity certain
An annuity that provides a benefit amount payable for a specified
period of time regardless of whether the annuitant lives or
dies.
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annuity due
A series of payments in which the payments are made at the
beginning of each interval of time.
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annuity immediate
A series of payments in which the payments are made at the
end of each interval of time.
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annuity mortality
table
A tabulation of probabilities of dying at each age. Used by
actuaries to calculate premiums and reserves for annuities
in which benefits are paid only if a designated person is
alive. Annuity mortality tables usually project lower rates
of mortality than do mortality tables that are used for life
insurance. See also mortality tables.
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annuity period
The time between each benefit payment made under an annuity
contract.
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annuity units
The term used for ownership shares in a variable annuity's
separate-account fund after the accumulation period has ended.
Annuity units are bought with accumulation units and are used
to determine benefit payment amounts. See also accumulation
units.
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antiselection
The tendency of people with a greater-than-average likelihood
of loss to apply for or continue insurance to a greater extent
than do other people. Also called adverse selection or selection
against the insurer.
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apparent authority
Authority that is not expressly conferred on an agent but
that the principal either intentionally or negligently allows
a third party to believe the agent possesses. See agent and
principal. Compare to express authority and implied authority.
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applicant
The party applying for an insurance policy.
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application
A form that must be completed by an individual or other party
who is seeking insurance coverage. This form provides the
insurance company with much of the information it will need
to decide whether to accept or reject the risk.
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approval type
temporary insurance agreement
An agreement issued in conjunction with a conditional premium
receipt that provides temporary life insurance coverage as
of the date the insurer approves the proposed insured as a
standard risk. See also conditional premium receipt and temporary
insurance agreements. Compare to insurability type temporary
insurance agreement.
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assessment method
An early method of funding life insurance under which members
of the plan were charged in advance for the amount of money
that the administrators estimated would be needed to pay each
year's death claims. Also called the pre-death assessment
method. See also mutual benefit method.
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asset-liability
matching
The process of investing, purchasing, selling, and otherwise
adjusting an insurance company's asset holdings so that cash
is available when it is needed to cover the company's liabilities.
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assets
All things of value owned by an individual or organization.
Examples of assets include cash, data processing equipment,
and investments. Assets are shown on the balance sheet of
a life insurance company's Annual Statement as required by
law or by insurance department ruling.
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asset share
The amount of assets that any block of insurance policies
will have accumulated by a given time.
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asset share
calculation
A computation that simulates the way in which the assets of
a block of policies should grow, depending on various assumptions
about future interest rates, mortality, morbidity, expenses,
lapses, etc.
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assignee
The party to whom all or certain contractual rights are transferred
under an absolute or collateral assignment.
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assignment
(1) The transfer of ownership rights in a life insurance policy
or other type of contract from one party to another. (2) The
document that causes the transfer of ownership rights to go
into effect. See also absolute assignment and collateral assignment.
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assignment of
benefits
An authorization directing an insurer to make payment directly
to a provider of benefits, such as a physician or dentist,
rather than to the insured.
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assignor
The person or party who transfers certain contractual rights
under an absolute or collateral assignment.
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association
group insurance
Group insurance extended to the members of a trade, professional,
or other association.
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assumption reinsurance
A reinsurance agreement by which one company permanently transfers
full responsibility for a block of policies to another company.
After the cession, the ceding company is no longer a party
to the insurance agreement.
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attained age
The current age of the insured. The age of the insured at
the time the insured's policy was issued plus the number of
years elapsed since the policy was issued.
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attained age
conversion
The changing of a life insurance policy from one form of insurance
to another (such as from term life insurance to whole life
insurance) at a premium rate that is based on the age the
insured person has reached at the time the change takes place.
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Attending Physician's
Statement (APS)
A written statement from a physician who has treated, or is
currently treating, a proposed insured or an insured for one
or more conditions. The statement provides the insurance company
with information relevant to underwriting a risk or settling
a claim.
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automatic dividend
option
For a particular life insurance policy, the dividend option
that applies in the event the policyowner does not choose
an option. See dividend options.
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automatic nonforfeiture
option
For a particular life insurance policy, a specified nonforfeiture
benefit that becomes effective automatically when a renewal
premium is not paid by the end of the grace period and the
policyowner has not elected another nonforfeiture option.
See also nonforfeiture options.
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automatic premium
loan (APL)
A life insurance nonforfeiture option that allows the insurer
to pay overdue premiums on a policy by establishing a loan
against the policy's cash value. See also nonforfeiture options.
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automatic reinsurance
treaty
A reinsurance agreement in which the reinsurer agrees, for
a stipulated type of risk, to accept each risk or a portion
of each risk submitted by the ceding company, up to a certain
limit, provided the ceding company insures up to its usual
retention limit. In this agreement, the ceding company assumes
full underwriting responsibility for all cases reinsured.
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average indexed
monthly earnings
In the United States, the figure on which social security
disability, retirement and other benefits are based. The figure
is an average of the monthly earnings on which a worker has
paid social security tax. The figure is indexed, that is,
adjusted to compensate for inflation.
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aviation exclusion
A life insurance contract provision which specifies that the
death benefit is not payable if the insured dies as a result
of certain aviation activities.
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