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Glossary of Insurance Terms

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rated policy
A policy issued to insure a person classified as having a greater-than-average likelihood of loss. The policy may be issued (a) with special exclusions, (b) with a premium rate that is higher than the rate for a standard policy, or (c) with exclusions and a higher than standard premium rate.

rate making
The calculation of premium rates for an insurance company's products. Actuaries consider several factors when they establish life insurance premium rates. The most important factors are mortality rates, interest rates, and loading.

rate of return method
A method of comparing the costs of life insurance policies wherein the key figure calculated is an annual interest rate, representing a rate of return. Also called the Linton yield method. See also cost comparison methods.

rating classes
The three different approaches that insurers take when they use mortality assumptions to calculate group life insurance premiums. The three rating classes for group premiums are manually rated premiums, experience rated premiums, and blended premiums. See also blended rates, experience rating, and manual rates.

rating manual
An abbreviated underwriting manual that includes only suggested ratings and a small amount of background information for each impairment listed.

reasonable and customary charge
The amount of money most frequently charged for certain medical procedures in a given geographical area. Medical expense insurance payments are often based on reasonable and customary charges.

rebating
An insurance sales practice that is prohibited in most of the United States and Canada. In rebating, the agent offers the prospect a special inducement to purchase a policy. The rebate is usually made in the form of a share of the agent's commission.

recording method
A method of changing the beneficiary of a life insurance policy in which the policyowner makes the change effective simply by notifying the insurance company in writing of the change. Also called the filing method. Contrast with endorsement method.

recovery benefit
A partial or residual disability benefit payable after an insured satisfies a qualification or an elimination period, returns to work, and then suffers a loss of earnings directly resulting from a preceding total or partial disability. Also known as income replacement benefit. See also partial disability benefit and residual disability benefit.

reduced paid-up insurance option
A nonforfeiture option under which the net cash value of a life insurance policy is used as a net single premium to purchase a smaller amount of fully paid insurance of the same kind and for the same period as the policy being surrendered.

refund annuity
A life annuity that specifies that at least the purchase price of the annuity will be paid out in benefits. See also life annuity.

regional director of agencies (RDA)
An insurance company employee responsible for appointing PPGAs to represent the company.

registered pension plan
In Canada, a pension plan which has met the requirements of and has been registered by the Canadian Minister of National Revenue.

registered principal
Any person who is licensed with the National Association of Securities Dealers and who holds a management or supervisory position in a securities broker-dealer firm.

registered reinsurer
In Canada, a reinsurer which is licensed to accept reinsurance in a given jurisdiction. Contrast to unregistered reinsurer.

registered representative
Any person who is licensed with the National Association of Securities Dealers and who is engaged either in selling securities as the agent or representative of a broker-dealer or in training the sales persons associated with a broker-dealer.

registered retirement plan
In Quebec, a pension plan which has met the requirements of and has been registered by the Quebec Department of Revenue.

registered retirement savings plan (RRSP)
A plan enabling Canadian citizens to establish tax-sheltered accounts to accumulate money toward retirement.

reinstatement
The process by which a life insurance company puts back in force a policy that had lapsed because of nonpayment of renewal premiums.

reinstatement provision
A life insurance policy provision that describes the conditions the policyowner must meet in order for the insurer to reinstate the policy if it has terminated because of nonpayment of renewal premiums.

reinsurance
A transaction between two insurance companies in which one company purchases insurance from the other to cover part or all of the risks that the first company does not wish to retain in full. See also ceding company and reinsurer.

reinsurance treaty
A broadly worded statement of the agreement between a reinsurer and a ceding company. The three common types of reinsurance treaties are automatic, facultative, and facultative-obligatory. Usually just called a treaty. See also automatic reinsurance treaty, facultative reinsurance treaty, and facultative-obligatory (fac-ob) reinsurance treaty.

reinsurer
An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction. Also called the assuming company.

relation of earnings to insurance clause
A clause included in some guaranteed renewable or noncancellable individual disability policies that limits the amount of benefits in which an insurer will participate when the total amount of disability benefits from all insurers exceeds an insured's usual earnings. Also known as a participation limit.

relative value schedule
A surgical schedule which expresses the cost of a surgical procedure as a unit value rather than as a dollar amount. A procedure with a value of 20, for example, should cost twice as much as a procedure with a value of 10. See also fee schedule.

renewable term insurance
A type of term insurance which includes a renewal provision that gives the policyowner the right to renew the insurance coverage at the end of the specified term without submitting evidence of insurability.

renewal commissions
Those commissions paid to the agent for a specified number of years, usually nine, after the first policy year. The renewal commission rate is generally much lower than the first-year commission rate and is paid only on policies that remain in force.

renewal premiums
Premiums payable after the initial premium.

renewal provision
(1) An individual life insurance policy provision that gives the policyowner the right to continue the insurance coverage at the end of the specified term without submitting evidence of continued insurability. (2) A provision in an individual health insurance policy describing the circumstances under which the insurance company may refuse to renew the coverage, may cancel the coverage, or may increase the policy's premium rate.

replacement
The act of surrendering an insurance policy or part of the coverage of an insurance policy in order to buy another policy.

reportable event
In the United States, an event that indicates that the financial condition of a pension plan is or may be deteriorating to the point that the plan may be terminated. Such events must be reported to the Pension Benefit Guaranty Corporation (PBGC).

representation
A statement by an insurance applicant of facts upon which the insurer bases its decision as to whether or not to issue the policy as applied for.

required reserve
In Canada, a reserve that an insurance company must maintain as required by the insurance department of the province in which the insurer operates and by any foreign jurisdictions in which the insurer operates.

rescission
An equitable remedy under which the insurer seeks to void a policy or have it declared void. Rescissions usually occur when there has been material misrepresentation in the insurance application.

reserve
Typically, the liability account that identifies the amount of assets needed to pay future claims. There are many different types of reserves. When the term "reserve" is used in the life insurance industry, it usually refers to the policy reserve. See policy reserve.

reserve for future contingent benefits
In health insurance, an amount established as a reserve for deferred maternity benefits and for any other claims that may have already been incurred but that may be contingent upon a future event or circumstances beyond the insurer's control.

reserve strengthening
The process of setting up additional policy reserves.

residual disability benefit
A partial disability benefit amount that is established according to a formula specified in a disability income insurance policy. The amount of the benefit varies according to the percentage of income loss attributable to the disability. See also partial disability benefit.

resisted claim
A claim that an insurer has refused to pay but that it may pay in the future.

restricted stock
Stock that is conditionally given by an employer to compensate an executive. In some instances, the executive is only granted full ownership of the stock if the executive continues to work for the company for a certain period of time.

result clause
A type of war hazard exclusion that excludes payment of benefits only for losses resulting from war or acts of war. Contrast with status clause.

retained asset account (RAA)
An interest-bearing money market checking account that is established by an insurer for the beneficiary of a life insurance policy, and into which the insurer deposits the policy's death benefit.

retention
(1) In reinsurance, the amount of a reinsured risk which the ceding company retains. (2) See retention charge.

retention charge
For a group insurance contract, the portion of the premium that is intended to cover expenses (other than claims) and to allow the insurance company to make a profit. Sometimes simply called retention.

retention limit
The maximum amount of insurance that an insurance company will carry at its own risk on any individual without ceding part of the risk to a reinsurer.

retired lives reserve
A fund that some employers establish and pay into on behalf of employees while they are employed in order to provide group life insurance to the employees after they retire.

retroactive disability benefit
A type of disability benefit that is payable from the date of disability. The first payment is not made, however, until an elimination period has been satisfied.

retro premium
In group insurance, a premium rate agreed upon by the insurer and policyholder at the beginning of a premium-paying period but paid at the end of the period only if the group's claim experience warrants it. The insurer collects a lower base premium at the beginning of the period and, if necessary, charges the retro premium retroactively at the end of the period.

retrospective-rating arrangement
An alternative funding method for a group insurance contract whereby the insurer collects only a percentage (often between 90% and 95%) of the premium from the policyholder at the beginning of the premium-paying period and collects the rest of the premium at the end of the period, unless the group's claim experience is better than expected and the additional premium therefore is not owed. With this system the policyholder retains control of part of the premium for a longer time than with the traditional system.

retrospective review
A component of a utilization review program that provides an insurer with periodic reports on physicians' practice patterns and hospitals' average lengths-of-stay.

revocable beneficiary
A named beneficiary whose right to life insurance policy proceeds is not vested during the insured's lifetime and whose designation as beneficiary can be cancelled by the policyowner at any time prior to the insured's death. See also beneficiary.

rider
An amendment to an insurance policy that becomes a part of the insurance contract and expands or limits the benefits payable. Also called an endorsement.

right of survivorship
A stipulation sometimes included in assignments of life insurance policies which provides that if an assignee dies, the assignee's survivors are entitled to his or her portion of the assignment.

risk class
A group of insureds who present a substantially similar risk to the insurance company. Among the most common risk classes used by life insurance companies are standard, preferred, nonsmoker, substandard, and uninsurable.

rollover
In the United States, the tax-free transfer of account balances to an individual retirement account from a qualified retirement plan or another individual retirement account.

Written by the Insurance Center

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