Actuarial Valuations – A report prepared by an actuary to determine the accrued pension liabilities of a defined benefit pension plan.
Administrative Services Only (ASO) – A benefit funding arrangement in which a plan sponsor hires a third party to deliver administrative services to the plan such as claims processing and billing. The plan sponsor bears the full risk of the claims.
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Beneficiary – A person who may become eligible to receive or is receiving benefits under an insurance policy other than a participant.
Buy-Sell Agreement – 1) An agreement among part-owners of a business which says that under stated conditions, i.e., disability or death, the person withdrawing from the business or his heirs are legally obligated to sell their interest to the remaining part-owners, and the remaining part-owners are legally obligated to buy at a price fixed in the agreement; (2) a similar agreement between an owner or part-owner of a business and a non-owner, such as a key employee.
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Canada Pension Plan (CPP) – A mandatory earnings-related pension plan implemented January 1, 1966 to provide basic retirement income to Canadians between the ages of 18 and 70 who work in all the provinces and territories, except in the province of Quebec. Quebec operates its own pension plan similar to the CPP for persons who work in that province.
Capital – The money, property or other assets needed to operate a business. The term is also used to apply to cash in reserve, savings, or other property value.
Children of a Plan Member – Dependant children who are under age 18. Children between 18 and 25 may receive allowances if they are enrolled in a school or other educational institution full-time and have attended continuously since their 18th birthday. The allowance is equal to one tenth of the plan member’s pension (maximum of four tenths).
Claims Experience Weighting – The way in which insurance companies assign relative importance to historical claims experience. Typically, the last year of claims experience is weighted the most relevant when determining premium rates.
Conversion Privilege – The right of an individual to convert a Group Health, Life or LTD policy to an individual policy without providing evidence of good health should the individual cease to be a member of a group insurance plan.
Convertible – A policy that may be changed to another form by contractual provision and without evidence of insurability. Most Term policies are convertible into Permanent insurance.
Cost of Living Adjustment (COLA) – A cost of living adjustment provides an indexing of the disability payment based on any adjustment in the consumer price index (CPI), not to exceed a stated maximum. The adjustment to the monthly benefit is made on an annual basis, typically at the end of the first year of LTD benefit payments.
Credibility Factor – An assessment measure used by insurance companies to determine the extent to which a group’s historical claims experience may predict future claiming patterns. It is based on group size and number of years of claims experience. The larger the group, the more credible or believable the historical claim trends. The factor is expressed as a percentage and each insurance company uses their own method of calculation. If a group is less than 100% credible, the renewal pricing is partially influenced by the group’s own claims experience and partially by the insurers book rates.
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Dental Fee Guide – A list of recommended fees for dental services provided in general practice, which usually represents the maximum an insurance company will pay for specified procedures.
Disability – Disability is defined as a physical or mental impairment that prevents the individual from engaging in any employment for which the individual is reasonably suited by virtue of his or her education, training or experience and that can reasonably be expected to last for the rest of the individual’s life.
Disabled Life Reserves (DLR) – An amount of funds allocated for the projected cost of future disability claims. They are established to reduce or revalue assets to identify the existence of liabilities.
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Employee Benefit Program – Benefits offered to an employee by his employer, covering such contingencies as medical and dental expenses, disability, retirement, and death, usually paid for wholly or in part by the employer.
Evidence of Insurability – The statement of health information required by the insurer for the underwriting of an insurance policy.
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Funding Methods – Funding methods are those methods available to the plan sponsors for managing the financial risk or liability associated with employee benefit plans. The funding method selected will determine who is responsible for payment of eligible claims under a plan (the plan sponsor, the insurance company, or a combination thereof).
Examples: Insured vs. non-insured
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Grace Period – A specified period after a premium payment is due (usually 30 to 31 days) during which an insurance contract remains in force.
Group Certificate – A document given to each insured member of a group insurance plan that outlines coverage provided under the group contract.
Group Contract – A contract of insurance made with an employer or other entity that covers a group of persons identified by reference to their relationship to the entity buying the contract.
Group Life Insurance – Life insurance provided for members of a group. The cost is lower than for individual policies because administrative expenses per life are decreased, and measures taken against adverse selection are effective.
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Incurred Claims – Incurred claims include actual claims paid by the insurance company during the experience period (policy year) plus anticipated claims not yet reported but incurred in that experience period. This outstanding claims liability or reserve is often referred to as Incurred But Not Reported (IBNR).
Incurred Loss Ratios (ILR) – The ratio of Incurred Claims to Premiums over a period of time.
Inflation – The annual increase in the price of goods and services. In Healthcare, drugs carry high inflation costs, which are derived from technological advances, government cost shifting and increased utilization patterns.
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Non-Refund/Non-Retention/Fully Insured Plan – A group insurance plan in which an insurer pays all claims and assumes all risks for a plan sponsor (employer) in exchange for payment of a regular premium. The sponsors liability is limited to the premiums payable.
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Partial Disability – Partial disability is a plan design feature that provides protection for an employee who qualifies for disability benefits and is able to work in a reduced capacity. If the employee’s earnings become less than their pre-disability earnings by a stated % (ie. 20%), then they will be eligible for partial disability benefits.
Pensionable Service – Periods for which lifetime retirement benefits are provided to a plan member. It includes any periods of elective service regardless of whether he/she has paid fully for that service.
Plan Sponsor – The plan sponsor is the party that establishes and maintains the plan. The plan sponsor can be the employer, employee organization, association, committee or joint board of trustees or other similar group of representatives of the party involved in the case of a plan maintained by one or more employers/employee organizations.
Premiums – A regular periodic payment for a benefit under an insurance policy.
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Quebec Pension Plan (QPP) – A pension plan similar to the Canada Pension Plan, which covers persons working in the province of Quebec. It is administered by the Régie des rentes du Québec.
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Self-Insured/Self-Funding/Non-Insured Plan/ASO – A fully self-insured plan is one in which the plan sponsor assumes full liability for both the administration and the financial costs of the plan.
Survivor Benefits – A plan feature that provides benefits to an employee’s family in the event that the employee dies.
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Target Loss Ratios (TLR) – TLRs are expressed as a percentage of premiums and represent the insurer’s costs of doing business. This includes claim payments, administration costs and profit charges. Over time the insurance company aims to adjust pricing so that the ILR will equal the TLR. If the ILR is greater than the TLR, the insurance company will have lost money. Conversely, if the ILR is less than the TLR, the insurance company will have made money.
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Utilization Trends – The trend of increased utilization for insured services. Insurance companies establish usage rates and thus assess associated impact on program costs.
Underwriting – The process of identifying and classifying the potential degree of risk represented by the group insured