LIFE SETTLEMENT GLOSSARY EXAMPLE

R

rate

For life insurance, the per $1,000 unit cost of protection based on historical and expected loss experience for similar risks.

rate class

The premium group an insured falls into based on their health, occupation, avocation, and other lifestyle considerations.

rate regulation

The method state insurance departments use to monitor and/or approve life insurance insurance companies' rate changes.

rated or rated policy

The other end of the spectrum from a preferred risk, a rated policy is issued at a higher rate based on the life insurance company's perception the insured will experience a life expectancy under the median for a group of insured's.

rating agencies

The services that issue life insurance company ratings and opinions of the financial soundness of a life insurance company, including A.M. Best Co, Fitch, Inc., Moody's Investors Services, Standard and Poor's, and The Street.

rating bureau

rating bureaus are often set up by insurance companies to pool loss and claims experience so they calculate rates based on industry wide experience in order to promote adequacy and fairness.

reciprocal exchange

An association created to underwrite insurance for its members who each share in the losses of the risks covered.

redating

Most commonly, the reinstated process used by life insurance companies to place lapse policies back in force by eliminating the payment of past outstanding premiums.

redlining

The unlawful practice of refusing life insurance based solely on where applicants live (in the US).

reduced paid-up insurance option

One of various options a policyowner has to apply cash values when a policy lapses. The reduced paid up amount represents a guaranteed future death benefit that is available in lieu of taking the immediate cash surrender value of policy.

reinstatement provision

A policyowners contractual right to restore a lapsed policy to its original state, often requiring proof the insured's health has not changed significantly since the policy was originally purchased.

reinsurance

Coverage purchased by an insurance company to facilitate risk sharing by relying on the reinsurers partial reimbursement of future losses.

reinsurance treaty

One of three common types (automatic, facultative, and facultative-obligatory) of on-going agreements between an insurance company (known as the ceding company) and a reinsurance company.

reinsurer

An insurance company that does directly insure risks, but instead accepts and shares risks transferred from another insurance company under the terms of a reinsurance treaty.

related provider trust

A properly established and maintained, regulatory compliant trust that allows a life settlement provider or financing entity to hold ownership or beneficial interest in policies bought for a financing transaction.

renewable term life insurance

Term life insurance that allows the policyowner the right to regularly renew it without submitting proof of insurability.

renewal premium

Subsequent premiums that are due on a life insurance policy after the initial term.

renewal provision

The conditions governing a policyowners rights to renew a policy beyond its initial term.

replacement

As defined by state law, typically when an agent solicits a new policy in exchange for an old one, or when policy cash values for an old policy are borrowed to initiate or sustain a new one.

reputational risks

Regarding life settlements, the "public opinion" risk an institutional investor assumes when they participate in the life settlement industry.

required rate of return

The rate of return an institutional investor must have on the outflows associated with procuring and maintaining life settlement policies.

rescission

The voiding of a life insurance policy by the insurance company, that typically occurs after the company discovers a material misrepresentation made by the applicant in conjunction with the initial application or reinstatement process.

reserve

The financial liability a life insurance company carries on its books for each policy.

retention

The non-reinsured risk that is assumed by a life insurance company.

retention limit

The maximum amount of coverage an insurance company can assume "in house" without ceding a potion to a reinsurance company.

retrocession

The reinsurance that reinsurers purchase to protect their own financial stability.

retrospective rating

An insurance rating method that allows the final premium for a risk to be adjusted based on actual loss experience, according to stipulated guidelines.

return on equity

A measurement of the efficiency of invested capital that is determined by dividing income by equity.

return on investment (ROI)

The rate of return anticipated or received from a series of cash flows over a projected time horizon.

revocable beneficiary

The typical life insurance beneficiary class, whereby the policyowner may remove and replace a beneficiary at any time prior to the insured's death.

rider

Optional or additional benefits under a life insurance policy, including waiver of premium, supplementary term, additional insured, cost of living, children's term insurance, option to purchase additional insurance, accelerated benefits, and accidental death.

risk

The probability a loss will occur.

risk class

An actuarially determined classification a life insurance underwriter assigns to those belonging to a specific group of insured's with similar life expectancies.

risk management

The analysis of risk exposures and choice of options to better manage or reduce losses.

risk retention groups

Self-insured organizations chartered and licensed as an insurer in at least one state.

risk-based capital

The regulatory requirement that insurance companies be capitalized according to risks associated with the type of insurance they sell.

rollover

The tax advantaged direct transfer of funds from one plan to another plan of the same kind such as a pension rollover or a 1035 exchange of a life insurance policy or annuity.