Glossary

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labor union group. A type of group that generally is eligible for group insurance coverage and that consists of members of a labor union or all of any class or classes of union members other than the union officials, agents, or representatives.

lapse. The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

lapse notice. See policy grace notice.

lapse rate. For a specified group of insurance contracts, a measure of the percentage of contracts that are voluntarily surrendered in a specified period, such as a year. Contrast with persistency rate.

late enrollee. For purposes of group health insurance, and according to the Health Insurance Portability and Administration Act (HIPAA) in the United States, an individual who enrolls in a group health plan other than during the first period in which he is eligible to enroll or during a special enrollment period.

late entrant. For purposes of group life and health insurance coverage, an eligible group member who enrolls for the group coverage after the expiration of her eligibility period. Unless they enroll during an open-enrollment period, late entrants generally must provide satisfactory evidence of insurability in order to enroll for group insurance coverage.

late-remittance offer. See reinstatement.

law of agency. The body of law that defines the rights, duties, and liabilities that arise among the parties when an agent represents a principal in contractual dealings with third parties. See also agent and principal.

layering. A method of dividing reinsurance coverage among multiple reinsurers by allowing one reinsurer or a pool of reinsurers to cover all cases in excess of an insurer's retention limit up to a specified amount. See also first excess and second excess.

LCM rule. See lower of cost or market rule.

legal actions provision. An individual health insurance policy provision that places limitsÊusually two or three yearsÊon the time within which a claimant who disagrees with the insurer's claim decision has the right to sue the insurer to collect the amount the claimant believes is owed under the policy.

legal reserve. See policy reserve.

letter of credit. A document issued by a bank guaranteeing the payment of a customer's bank drafts up to a stated amount for a specified time period.

letters patent. In Canada, a document used by the federal government and the governments of Quebec, Manitoba, Prince Edward Island, and New Brunswick, giving an insurer the right to incorporate.

level commission schedule. A commission schedule for insurance sales that provides the same commission rate in the first policy year as in subsequent renewal policy years. See also commission and levelized commission schedule.

levelized commission schedule. A commission schedule for insurance sales in which first-year commissions are higher than subsequent renewal commissions, but the gap between first-year and renewal commissions is smaller than the gap in the traditional commission system. See also commission and level commission
schedule.

level premium policies. Premiums paid for a life insurance policy or for a deferred annuity that remain the same each year that the contract is in force. Contrast with modified premium policies and single premium policies.

level term life insurance. Term life insurance that provides a death benefit that remains the same amount over the term of the policy.

leverage. See financial leverage.

liabilities. An accounting classification that represents a company's monetary value for its current and future obligations. An insurer's liabilities consist primarily of limited debts and vast reserves for future contractual obligations.

liability insurance. Insurance that protects the insured from financial loss when he is held legally responsible for bodily injury or property damage losses sustained by others. Also known as casualty insurance.

license. See certificate of authority.

LICTI. See life insurance company taxable income.

life and health insurance guaranty association. In each state in the United States, an organization that protects policyowners, insureds, beneficiaries, annuitants, payees, and assignees against losses that might result from the impairment or insolvency of a life or health insurer that does business in the state. Insurers are required to participate in a state's guaranty association in order to be licensed in that state.

Life and Health Insurance Policy Language Simplification Act. In the United States, a National Association of Insurance Commissioners (NAIC) model law that is designed to simplify the language used in individual life and health insurance policies and annuity contracts so that consumers are better able to understand the terms of their policies and contracts.

Life and Health Reinsurance Agreements Model Regulation. In the United States, a National Association of Insurance Commissioners (NAIC) model regulation providing guidelines to help determine whether enough risk is transferred in a reinsurance agreement to permit the ceding company reserve credit.

life annuity. A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named
individualÊthe annuitant. If a life annuity provides no further benefits after the death of the annuitant, the annuity is known as a straight life annuity. However, some life annuities provide that income payments will be paid either for the life of the annuitant or for a guaranteed periodÊlife income with period certainÊor at least until a guaranteed amount has been paidÊlife income with refund annuity. See also life annuity with period certain, life income with refund annuity, and straight life annuity.

life annuity with period certain. A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named individualÊthe annuitantÊand guarantees that the payments will continue for at least a specified period. If the annuitant dies before the end of that specified period, the payments will continue to be paid until the end of the period to a beneficiary designated by the annuitant. See also life annuity.

life income with refund annuity. A type of annuity contract that guarantees specified periodic income payments throughout the lifetime of a named individualÊthe annuitantÊand guarantees that a refund will be made if the annuitant dies before the total of the periodic payments made equals the amount paid for the annuity. Also known as refund annuity. See also life annuity.

life insurance. A type of insurance that pays a benefit if the person who is insured by the contract dies while the insurance is in force.

Life Insurance and Annuities Replacement Model Regulation. In the United States, a National Association of Insurance Commissioners (NAIC) model regulation that serves as a basis for state replacement regulations and is designed to ensure that insurers and producers provide consumers with fair and accurate information about life insurance and annuity products. Also known as Model Replacement Regulation.

life insurance company taxable income (LICTI). The difference between a life insurance company's gross income and its tax deductions. To calculate LICTI, insurers first determine gross income, which includes advance premiums and excludes deferred and uncollected premiums.

Life Insurance Disclosure Model Regulation. In the United States, a National Association of Insurance Commissioners (NAIC) model regulation that is designed to improve purchasers' knowledge of life insurance and specific life insurance products and to enable consumers to compare the costs of life insurance policies. This regulation requires that a prospective life insurance purchaser be provided with a Buyer's Guide and a policy summary. See also Buyer's Guide, Guide to Buying Life
Insurance, and policy summary.

Life Insurance Illustrations Model Regulation. In the United States, a National Association of Insurance Commissioners (NAIC) model regulation designed to protect consumers from the inappropriate or unethical use of sales illustrations by providing standards for insurers and agents to follow when they create and use illustrations to sell certain types of life insurance.

life insurance policy. See life insurance.

life insured. In all provinces of Canada except Quebec, the person whose life is insured by an individual life insurance policy.

lifetime benefit period. A feature in long-term care (LTC) insurance policies that provides for payment of a daily benefit amount for the remainder of the insured person's life, provided the insured person is receiving custodial care. See also custodial care.

lifetime maximum benefit. For a medical expense insurance policy, the maximum amount that an insurer will pay for all eligible medical expenses that an individual incurs while insured under the policy.

life with period certain annuity. See life annuity with period certain.

life with refund annuity. See life income with refund annuity.

limitation. An insurance policy provision that restricts the coverage provided by the policy. See also exclusion and reduction.

limited-scope regulatory examination. In the United States, a regulatory examination that focuses on specific areas of an insurer's financial condition, such as its reserves or its ability to pay claims, rather than on its financial condition as a whole. Contrast with full-scope regulatory examination. See also on-site regulatory examination.

line of business. A segment of products that has a cost pattern distinct from that of other segments. Also known as product line.

line of credit. A prearranged financial agreement that allows an entity to borrow money from a lender for a short term, and for up to a specified amount.

liquid assets. In accounting, a business organization's cash and readily marketable assets.

liquidation. The process of selling all company assets for cash and using that cash to pay the company's debts; any funds remaining are distributed to the owners of the business. For an insurer's liquidation, an agent of a court either (1) transfers all of the financially-troubled insurer's business and assets to other insurers or (2) sells the financially-troubled insurer's assets and terminates the business. Contrast with rehabilitation. See also receivership.

liquidation period. See payout period.

liquidity. The ease with which an asset can be converted into cash for an approximation of its true value.

liquidity ratios. Financial ratios that measure a company's ability to meet its maturing short-term obligations.

litigation. The process or act of resolving a dispute by means of a lawsuit.

loading. The total amount added to an insurance policy's net premium to cover all of the insurer's costs of doing business.

location-selling distribution system. An agency-building insurance distribution system designed to generate consumer-initiated sales at an insurance facility located in a store or other establishment at which consumers conduct personal business or shop for other products. See also agency-building distribution system.

long-term assets. In accounting, assets that a company plans to hold indefinitely or for a long timeÊgenerally more than a yearÊto generate income. Contrast with short-term assets.

long-term budget. A budget that generally covers periods of more than one year. Contrast with short-term budget.

long-term care (LTC) insurance. Insurance that provides medical and other services to insureds who need such care in their own homes or in an institution providing LTC care.

Long-Term Care Insurance Model Act. In the United States, a National Association of Insurance Commissioners (NAIC) model law that establishes standards for both group and individual long-term care (LTC) insurance and is designed to protect the public and, at the same time, promote the availability of LTC coverage and flexibility in the design of such coverage.

long-term disability income insurance. A type of disability income insurance that provides disability income benefits after short-term disability income benefits terminate and continues until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pension benefits. Contrast with
short-term disability income insurance.

long-term liabilities. In accounting, financial obligations that do not have to be paid in full during the current accounting periodÊusually one year. Contrast with short-term liabilities.

look-back period. In the United States, for purposes of the Health Insurance Portability and Accountability Act (HIPAA), a maximum period of six months preceding the date an individual enrolls in a group health plan during which any physical or mental condition for which medical advice, diagnosis, care, or treatment was recommended or received may be classified as a preexisting condition that is excluded from coverage for a limited period.

loss ratio. One measure of the reasonableness of health insurance policy premiums that compares the ratio of total claims incurred to total premiums received for those policies.

lower of cost or market (LCM) rule. Under statutory accounting practices, a bond's monetary value is defined as either its amortized cost or its current market value, whichever is lower.

LTC coverage. See long-term care insurance.

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