Life Insurance Glossary
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A
Accelerated Death Benefit:
An optional provision in a life insurance policy that allows a
specified percentage of the death benefit to be paid prior to the
insured's death, if a doctor certifies that the insured's life
expectancy is limited (usually 12 months or less).
Accidental Death Benefit:
A benefit from a life insurance policy that is paid when an insured's
death is the direct result of an accident and has occurred within a
certain period of time following the accident.
Accumulation Value:
The cash accumulation component of an annuity or universal life
insurance policy. The accumulation value reflects premiums received,
withdrawals made, expenses charged, cost of insurance deducted and
interest credited.
Age at Issue:
The insured's age at the time coverage takes effect. Insurance plans
typically define issue age as either the age at the insured's last
birthday or nearest birthday.
Agent:
An authorized representative of an insurance company who solicits and
services insurance contracts.
Also known as an Associate.
Allocation Date:
The first business day after the Free-Look period in a variable
contract expires.
Annuitant:
The individual whose lifetime is used to calculate the pay period of a
life annuity.
Annuitization:
To select a settlement option beginning periodic payments from an
annuity contract.
Annuity:
A contract issued by an insurance company where guaranteed or periodic
variable payments begin at a specified time.
Annuity Starting Date:
The date when an annuity contract begins to make periodic benefit
payments; the beginning of the payout period.
Application:
A written form provided by an insurance company that is typically
completed by the insurer's agent and, in the case of most life
insurance policies, also by its medical examiner. The form provides
information about the physical condition, occupation and avocation of
the proposed insured. The policy application is signed by the applicant
(typically, but not always, the insured) and becomes a part of the
information an insurance company considers when deciding whether or
not, and on what terms and conditions, a contract should be issued.
Assignee:
The person or party who receives a transferred right when a life
insurance policy is assigned. See Assignment.
Assignment:
The act of transferring all or part of one's rights and benefits in a
life insurance or annuity contract from an assignor (typically the
policy owner) to an assignee.
Associate:
See Agent.
Attained Age:
The insured's age on the policy date plus the number of full years
since the policy date.
Automatic Increase Rider:
An optional policy in a universal life contract that provides scheduled
increases in face amount based on a designated percentage, beginning in
a designated policy year. This option must be applied for at the time
of issue of the base policy.
Automatic Premium Loan
Provision:
If invoked, an option that allows the insurer to automatically borrow
money from a policy's cash or accumulation value to pay any premium in
default at the end of a grace period in order to keep a policy from
lapsing.
Bailout Provision:
A provision in some annuity contracts whereby, if the interest rate
being credited to the annuity fund ever falls below a specified rate,
the policyholder may withdraw the initial premium amount paid without a
surrender charge.
Bank Draft:
An arrangement where a policyowner allows a bank to withdraw money from
his or her account on a scheduled basis and transfer the money to an
insurance company to be applied as payment to a policy. Also known as
an Electronic Funds Transfer.
Beneficiary:
The individual or entity designated to receive the death benefits from
a life insurance policy or annuity contract.
Beneficiary (Contingent):
The individual(s) designated to receive a death benefit in the event
the primary beneficiary(ies) is/are no longer living at the time the
insured or annuitant dies.
Beneficiary (Primary):
The beneficiary(ies) specially designated by the owner as the first in
priority to receive policy proceeds.
Broker:
An individual who acts as an intermediary between a buyer and seller,
usually charging a commission. Also, the insurance sales representative
who, on behalf of his or her clients, solicits in the insurance market
and generally sells various kinds of insurance for several companies.
Broker-Dealer:
A business entity licensed and registered with the Securities and
Exchange Commission (SEC) and the National Association of Securities
Dealers (NASD). A broker-dealer has the legal right to offer securities
products to the public. An agent selling variable life, variable
annuity products and related securities, such as mutual funds, must be
registered with a broker-dealer.
Buy-Sell Agreement:
An agreement in which either a business or its surviving shareholder
owners (or both) will purchase the shares or interests owned by a
deceased or retiring shareholder owner at a value or formula previously
agreed upon by the parties and stipulated in the agreement.
Cash Surrender Value:
The amount available to a policyowner when a life insurance policy is
terminated for a reason other than the insured's death. The cash
surrender value is determined by the value of the account less any
policy debt and applicable surrender charges.
Cash Value:
The net internal cash accumulation within a traditional life insurance
policy.
Children's Term Rider (or
Children's Insurance Benefit):
An optional policy rider that provides level term insurance on children
of the primary insured.
Collateral Assignment:
The act of transferring certain rights in a life or annuity policy to
another party as security for a debt, usually a temporary assignment.
Under a collateral assignment, the creditor is entitled to be
reimbursed only to the extent that "his interest may appear," i.e.,
policy proceeds will be payable only for the amount owed by the
policyowner to the creditor at that time. Any death benefit or cash
surrender in excess of the debt owed by the policyowner to the creditor
is paid to the policy's beneficiary. A collateral assignment may also
place restrictions or limitations on policy loans.
Contestable Clause (or
Incontestable Clause):
A provision in a life insurance contract that states the time (called
the contestable period) during which the policy may be contested or
voided by the insurer based on misrepresentations contained in the
application or medical examination. By law, the maximum contestable
period is two years.
Contract (Policy):
The basic written agreement between the insurer and the policyowner.
Conversion:
A policy may contain a provision providing that under certain
circumstances the policy may be exchanged for another life insurance
contract, typically without further underwriting requirements. For
instance, term insurance can be converted to whole life or, in some
cases, another form of permanent insurance.
Convertible:
A term used to describe a policy that contains a conversion provision.
Cost of Insurance:
A universal life or variable universal life contract provision; the
"cost of insurance" is the amount deducted monthly from the
accumulation value to cover the pure insurance protection provided by
the policy. The amount deducted is calculated based on a number of
factors such as age, rating and net amount at risk.
Date of Issue:
The effective date of the policy as issued by the insurer.
Death Benefit:
The amount paid to the beneficiary upon the death of the insured
regardless of cause.
Death Claim:
The notification to an insurance company of the insured's
death and request for payment of policy proceeds according to the terms
of the policy.
Deferred Annuity:
An annuity in which periodic benefit payments do not begin until after
a specified number of years or the annuitant reaches a specific age.
Dividend:
The amount of an insurer's surplus that is available for distribution
to the owners of participating policies. The dividend results from
actual mortality, interest and expenses that were more favorable than
expected when premiums were set.
Electronic Funds Transfer:
An arrangement where a policyowner allows a bank to withdraw money from
his or her account on a scheduled basis and transfer the money to an
insurance company to be applied as payment to a policy. Also known as a
Bank Draft.
Endow:
The point in time when a life insurance policy's cash value equals the
face amount.
Evidence of Insurability:
Proof of a person's physical condition, occupation, or other factors,
utilized by an insurance company to determine the acceptability of the
applicant for insurance.
Excess Interest:
The difference (always positive) between the rate of interest an
insurer actually pays and the guaranteed amount to be paid.
Expected Return:
The amount expected to be received by an annuitant under an annuity
contract, based on the periodic payment and the annuitant's life
expectancy or the guaranteed number of payments, as calculated when
benefits begin. The expected return is utilized to calculate federal
income tax of interest received in each annuity payment.
Expense Charge:
A monthly charge paid to an insurance company based on various
characteristics of the insured, such as age. Charges are defined for a
specified period of time as provided in the contract.
Face Amount:
The amount stated on the insurance policy that will be paid in the
event of the death of the insured or at the policy's maturity,
whichever occurs first. The face amount does not include additional
amounts which may be payable under accidental death or other special
provisions or amounts acquired through the application of policy
dividends, if any.
Fixed Amount Periodic Payment:
Payments made in a specified amount that will completely exhaust a
principal sum over a specified time period.
Fixed Annuity:
An annuity that guarantees a minimum rate of interest during any
accumulation period and provides a guaranteed periodic payment at
annuitization.
Flexible Premium Deferred
Annuity:
An annuity that allows additional payments after the initial funding
with annuitization beginning after a specified number of years.
Free-Look Provision:
A provision in a life insurance policy or annuity that gives the
policyowner a stated amount of time to review a new policy after
issuance and receipt. The policy can be returned and voided within this
time frame for a refund of all premiums paid; for life insurance
policies, cancellation of coverage is effective from date of issue.
G
Grace Period:
As provided for under a contract, the time period following a monthly
anniversary during which a life insurance policy will continue in force
while the net cash surrender value is not sufficient to cover the
monthly expense charge then due.
Guaranteed Insurability Option:
A rider to a life insurance policy that gives the policyowner the right
to purchase additional insurance of the same type as provided in the
original policy on the insured. The additional insurance amount, based
on terms outlined in the rider, can be purchased at specified ages and
face amounts without providing new evidence of insurability.
H
Immediate Annuity:
An annuity that begins payments within 12 months of the purchase date.
An immediate annuity usually makes a payment at the end of each period
of payment. The interval may be monthly, quarterly, semiannually or
annually.
Individual Retirement Annuity
(IRA):
An annuity, available as a retirement account, to someone who is
employed. IRAs receive favorable tax status under Section 408 of the
Internal Revenue Code. IRAs are sometimes referred to as Individual
Retirement Accounts.
Insurable Interest:
A reasonable economic expectation held by an individual or entity in
the continuance of another person's life, or a reasonable expectation
of economic loss by an individual or entity resulting from a person's
death. The beneficiary must have a reasonable expectation of economic
loss by an individual or entity resulting from a person's death. If
there is no insurable interest, a policy cannot be written.
Insured:
The person whose life is covered by an insurance policy.
Interest Rate (Current):
This is the current interest rate credited to the policy or contract.
Interest Rate (Guaranteed):
The guaranteed minimum annual interest rate used in calculating items
such as policy reserves from year to year. Also the guaranteed factor
used to calculate interest payable on proceeds held under a settlement
option. This term also refers to the minimum rate credited each year to
any cash values.
Joint Annuity (Joint Life
Annuity):
An annuity payable to two or more annuitants until one of the two
annuitants dies. The joint annuity may provide for continuation of
payment or a reduced payment during the life of the surviving
annuitant.
K
Lapse:
The termination of an insurance policy resulting from nonpayment of
premiums or, in the case of variable life and universal life policies,
the depletion of cash value below the amount needed to keep the policy
in force. Under certain circumstances, coverage might continue under a
settlement option.
Life Annuity:
An annuity that pays a fixed income during the annuitant's lifetime.
Payments cease at the annuitant's death, even if the annuity has not
yet returned an amount equal to the premiums paid.
Life Expectancy:
The average number of years a person is expected to live. Life
expectancy is projected from a mortality table and is used to calculate
benefit payouts.
Lifetime Income with Period Certain:
Income paid for the life of the annuitant, guaranteeing payment for a
certain number of years if the annuitant does not survive. In the event
the annuitant dies within the certain period, the beneficiary receives
benefits for the remainder of the designated period.
Loan:
A sum granted by a life insurance company to the owner of a life
insurance policy, secured by the policy's cash surrender value.
Loan (Outstanding):
The total amount of policy loans, including both principal and interest
accrued.
Loan Provision:
A contract provision that grants the owner of a life insurance policy
the right to take a loan from the insurance company secured by the
policy's cash surrender value.
Maturity Date:
For life insurance policies, the maturity date is the end of the
contract term.
Medical Information Bureau
(MIB):
An independent entity that collects and stores medical data on life and
health insurance applicants. The information is exchanged among member
insurance companies upon written authorization of the insured. Its
purpose is to guard against fraud and concealment by helping insurers
discover pertinent, yet undisclosed, health facts.
Misstatement of Age:
The act of giving the wrong age for oneself on an insurance application
or for a beneficiary who is to receive benefits on a basis involving a
life contingency. In most life policies, the contract sets forth the
action to be taken if a misstatement of age is discovered after the
policy issue. Typically, the Face Amount is adjusted to reflect the
amount of coverage (face amount) that would have been purchased if the
correct age had been used on an issue date.
Monthly Anniversary:
The same day as the policy date for each succeeding month.
Net Amount at Risk:
The difference between the face amount of a life insurance contract and
the policy's accumulation or cash value.
Net Cash Surrender Value:
The cash surrender value less any outstanding loans or surrender
charges.
Nonforfeiture Values:
The values or benefits in a life insurance policy that the policyowner
does not forfeit, even if he or she chooses to discontinue payment of
premiums. They usually include cash value, reduced paid-up insurance
and extended term insurance values.
Other Insured Rider:
An optional policy rider that provides convertible term insurance to a
spouse or an immediate family member of the primary insured.
Owner (Policyowner):
An individual or entity that owns an insurance policy. The owner might
be the insured on the policy, the beneficiary or another party.
Generally, the policyowner pays the policy's premium and is the only
one to make changes to a policy, such as to change the beneficiary,
withdraw cash values, or make loans on the policy.
Participating Policy:
A life insurance contract in which the policy can be created with a
dividend payable from the life insurance company's surplus (profits).
Other policy provisions are substantially similar to whole life
insurance. Dividend payments are not guaranteed and will depend on
whether the insurance company declares a dividend.
Payee:
The person named to receive annuity payments from an annuity contract.
Payor:
The person making premium payments on a policy contract. If the payor
is not also the owner, he or she may not be entitled to exercise the
rights and provisions of the contract.
Period-Certain Annuity:
An annuity with a predetermined guaranteed number of payments, at equal
intervals made over a specified period. The payments are payable
whether or not the annuitant dies prior to the end of the stipulated
period.
Planned Periodic Payment:
The premium designated at the time of application as the amount planned
to be paid at specific intervals until the maturity date.
Contract (Policy):
The basic written agreement between the insurer and the policyowner.
The policy, together with the application and all endorsements and
attached papers, constitutes the entire contract of insurance.
Policy Anniversary:
An anniversary of the policy issue date.
Policy Date:
The date on which coverage becomes effective, as shown on the policy
date page.
Policy Year:
The year commencing with the policy date and ending on the day before
the first policy anniversary, or any following year commencing with a
policy anniversary and ending on the day before the next policy
anniversary.
Policyowner/Contract Owner
(Owner):
An individual or entity that owns an insurance or annuity policy. The
policyowner/contract owner may be the insured or the beneficiary. The
policyowner pays the premium and is typically the only individual or
entity who has the right to make changes to a policy, such as to change
the beneficiary, withdraw cash values, or make loans on the policy. He
or she may, or may not, also be the insured on the policy. Such rights
may be limited in the event the policy has a collateral assignment.
Premium:
Payments to the insurance company to purchase an insurance policy and
to keep it in force.
Premium Mode:
The frequency with which the payments are made, as selected by the
policyowner. Typical premium modes available are annual, semiannual,
quarterly or monthly.
Primary Insured Rider:
An optional policy rider that provides level term insurance on the
primary insured. When the Primary Insured Rider is combined with base
coverage, it can reduce premium costs for the amount of coverage as
compared to the cost of permanent plan of the same face amount. For the
same premium, it can improve policy performance on universal life or
variable life insurance policies.
Q
Rated:
A rated policy is one issued on a substandard risk with
higher-than-standard premiums.
Reinstatement Provision:
A policy provision defining a life insurance policyowner's right to
reinstate a lapsed policy within a certain time after lapse, as well as
the conditions necessary for reinstatement which may include evidence
of insurability and/or payment of back premiums and interest. The right
is usually forfeited once a policy has been surrendered for its cash
value.
Rider:
A written agreement attached to an insurance policy or annuity contract
that limits or expands the policy's terms or coverage that usually
requires additional premium. Examples of riders include:
| . | Accelerated Death Benefit-An optional provision in a life insurance policy that provides for a specified percentage of the death benefit to be paid prior to the insured's death in the event a doctor certifies that the insured's life expectancy is limited (usually 12 months or less). |
| . | Accidental Death Benefit-A benefit that provides coverage for loss of life due to an accident that was the direct cause of death and for a death that results within a certain period of time following the accident. |
| . | Automatic Increase Rider-An optional policy rider in a universal life contract that provides scheduled increases in face amount based on a designated percentage, beginning in a designated policy year. This option must be applied for at the time of issue of the base policy. |
| . | Children's Term Rider (or Children's Insurance Benefit)-An optional policy rider that provides level term insurance on children of the primary insured. |
| . | Guaranteed Insurability Option-An amendment to a life insurance policy that gives the policyowner the right to purchase additional insurance of the same type as provided in the original policy. The additional insurance amount, based on terms outlined in the contract, can be purchased at specified ages and rates without providing new evidence of insurability. |
| . | Other Insured Rider-An optional policy rider that provides convertible term insurance for a spouse or immediate family member of the primary insured. |
| . | Primary Insured Rider-An optional policy rider that provides level term insurance on the primary insured. When the Primary Insured Rider is combined with base coverage, it can reduce premium costs for the amount of coverage as compared to the cost of a permanent plan of the same face amount. For the same premium, it can improve policy performance on universal life or variable life insurance policies. |
| . | Waiver of Monthly Deduction-An optional life insurance policy rider that waives the monthly Cost of Insurance charges on a universal life or variable universal life policy for the length of a qualified disability as outlined in the policy contract. |
| . | Waiver of Specified Premium-An optional life insurance policy rider that waives a specified premium on a traditional product for the length of a qualified disability as outlined in the policy contract. |
S
Single Premium Deferred Annuity:
An annuity purchased with a single, lump-sum payment that earns
interest for a period of years before the payment period begins, and
which is taxed only when distributions are taken.
Suicide Provision:
A life insurance policy provision whereby if the insured commits
suicide within a specified period, usually one or two years after date
of issue, the company is not liable to pay the face amount of coverage;
instead, liability is limited to a return of premiums paid.
Surrender:
The policyowner's right to terminate policy coverage in exchange for
the policy's cash surrender value or other equivalent nonforfeiture
values.
Surrender Charge:
As provided in the contract provisions of a life insurance policy or
annuity contract, surrender charges are charges an insurance company
may deduct if the insured surrenders a life insurance policy or annuity
for the cash or accumulation value. Companies may also deduct this
charge if the insured borrows money on his or her policy, if the policy
lapses for nonpayment, or if the policyowner elects to decrease the
face amount of the policy.
Term Insurance:
A plan of insurance that covers the insured for a specified period of
time (term) and not for his or her entire life. The policy pays a death
benefit only if the insured dies during the term and if the policy has
not lapsed for nonpayment of the premiums due.
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U
Universal Life:
A flexible-premium, current-assumption, adjustable death benefit
policy. Similar to traditional life insurance policies, universal life
pays a death benefit and accumulates cash value; however, unlike
traditional life insurance products, a universal life policy allows the
policyowner to adjust the death benefit and to vary the amount and/or
frequency of premium payments.
Valuation Date:
A date in which the New York Stock Exchange is open for business when a
value or credit is given for funds.
Valuation Period:
A period in which unit values are determined for each variable
investment division at the end of each business day. A business day is
any day that the company and the New York Stock Exchange are open for
business.
Variable Universal Life:
A universal life insurance policy that provides flexible premiums and
death benefits, as well as the opportunity to build cash value in
separate investment accounts. The cash surrender value is not
guaranteed, but will fluctuate with the market value of the separate
account investment portfolio. The policyowner bears the risk of poor
fund performance.
Waiver of Monthly Deduction:
An optional life insurance policy rider that waives the monthly Cost of
Insurance charges on a universal life or variable universal life policy
for the length of a qualified disability as outlined in the
policy/contract.
Waiver of Specified Premium:
An optional life insurance policy rider that waives a specified premium
on a traditional product for the length of a qualified disability as
outlined in the policy contract.
Whole Life Insurance:
A plan of insurance that covers the insured for life, with level
premiums payable for his or her entire lifetime
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