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Glossary
 
 

Absolute Beneficiary
A beneficiary that cannot be changed without written consent.

Accelerated Benefits
Benefits available in some life insurance policies before death and usually triggered by long-term, catastrophic or terminal illness.

Accidental Death Benefits (ADB)
A provision added to a life insurance policy for payment of an additional benefit in case of death that results from an accident. This provision is often called "double indemnity."

Account Value or Accumulation Value
The accumulated premiums and interest after expense charges, cost of insurance, and charges for any supplemental benefits or riders in Universal life Insurance policies. Used to determine the policy's amount-at-risk in calculating mortality charges. A surrender charge is applied to it to determine the loan and surrender cash value.

Actual Age
An age calculation based on a person's last birth date (actual age) for premium rate determinations.

Actuary
A mathematician employed by an insurance company to calculate premiums, reserves, dividends, and insurance, pension, and annuity rates, using risk factors obtained from experience tables.

Adjustable Life Insurance
A type of life insurance that allows the policy holder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium and lengthen or shorten the protection period.

Advanced Premium Deposit
Annual premiums paid in advance at a discount. The interest earned on the amount deposited before the premium due date reduces the cost of the premiums.

Selection Adverse
The tendency of persons with higher risk health expectations to apply for or continue insurance coverage to a greater extent than persons with lesser health expectations.

Age Change
The date on which an insured's age changes. In most life insurance contracts this is the date midway between the insured's birthdays. The date of age change depends on whether the insurer uses a age nearest birthday or age last birthday calculation for determining premium rates.

Age Nearest Birthday
An age calculation based on a person's nearest birth date for premium rate determinations. If the person's birth date is within six months, they are considered the next age.

Age Limits
Ages below and above which an insurance company will not accept applications or renew policies.

Agent
An authorized representative of an insurance company who sells and services insurance contracts.

Amendment
Document changing the provisions of an insurance contract signed jointly by the insurer and the policyholder.

Annual Policy Statement
Individual statements, providing specific policy information and values, which are sent to policyowners on each contract anniversary.

Annuitize
To begin a series of payments from an annuity. This term also refers to the settlement of a life insurance policy under the contract's annuity options.
Annuity: A contract sold by a life insurance company that provides fixed or variable payments to an annuitant, either immediately or at a future date.

Applicant
The person applying for the insurance policy. The applicant is not necessarily the owner or the insured.

Application
A statement of information made by someone applying for life insurance. The information gathered helps the life insurance company assess whether the risk presented by the applicant is acceptable to underwriters.

Application Supplement
A supplement to the application which documents that the non-guaranteed elements of the contract have been disclosed to the applicant during the sales process.

Approval
Signifies the legal acceptance of forms by a state when policy information is filed; Signifies the insurer's acceptance of risks as set forth in an application for insurance (as originally made or modified by the insurer); or Signifies the acceptance of a request from an applicant or policy holder for new insurance, reinstatement of a terminated policy, a policy loan, or other request.

Assignment
The legal transfer of one person's interest in an insurance policy to another person.

Attained Age

The insured's age on a given date. Attained age is one of the factors life insurance companies use to determine the insured's premiums. Some insurance companies round up the insured's age to the next age six months after each birthday.

Attending Physician's Statement (APS)
Information from a proposed insured's physician covering medical history and results of medical examinations. It is used to determine the appropriate underwriting classification for the proposed insured.

Authorization
Permission from the policy owner or proposed insured which allows release of information to a named party.

Aviation Hazard
The extra hazard of death or injury resulting from participation in aeronautics, usually as other than a passenger. This generally requires an extra premium rating or waiver of certain coverage benefits

Backdating
A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at policy issue lower than it actually was in order to get a lower premium.

Beneficiary
The person(s) named in the policy to receive the life insurance proceeds upon the death of the insured.

Benefit Period
A period of time typically one to three years during which disability income or long term care benefits are paid after the waiting period is satisfied. When the benefit period ends, the insured must generally then satisfy a new waiting period in order to establish a new benefit period.

Benefits
The sum of money specified in a life insurance contract to be paid to the beneficiary when a loss occurs.

Binder
A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a new policy or endorse the existing policy immediately. A binder is subject to the premium and all the terms of the policy to be issued.

Binding Receipt
A receipt given for a premium payment accompanying the application for insurance. If the policy is approved, this binds the company to make the policy effective from the date of the receipt.

Blended Product
A general term used to describe products structured with both Whole Life and Term components.

Broker
A licensed person or organization paid by you to look for insurance on your behalf.

Burial Insurance
A life insurance policy of minimal face amount intended to provide just enough insurance to cover the burial and funeral expenses.

Business Life Insurance
Life insurance purchased by a business enterprise on the life of a member of the firm. It is often bought by partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee.

Buy-Sell Agreement
An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner's share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability.

Cancellation
The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Capacity
The amount of capital available to an insurance company or to the industry as a whole for underwriting general insurance coverage or coverage for specific perils.
Capital Stock and Surplus
Represents the excess of a company's assets over its liabilities as reported in its financial statements. Stock companies have capital stock and surplus. Capital stock represents funds paid into the company by stockholders. Surplus represents the remaining excess of assets over liabilities. Mutual companies only have surplus since there are no stockholders in a mutual company.
Captive Agent
Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive range of employee benefits such as pensions, life insurance, health insurance and credit unions.
Carrier
The underwriting insurance company.
Cash Surrender Value
The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse. Please note that the cash value only pertains to permanent life insurance and not term life insurance.
Cash Value Life Insurance
A type of insurance where premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the company and builds up a cash value that may be used in a variety of ways. You may borrow against a policy’s cash value by taking a policy loan. If you don’t pay back the loan and the interest on it, the amount you owe will be subtracted from the benefits when you die, or from the cash value if you stop paying premiums and take out the remaining cash value. You can also use your cash value to keep insurance protection for a limited time or to buy a reduced amount without having to pay more premiums . You also can use the cash value to increase your income in retirement or to help pay for needs such as a child’s tuition without canceling the policy. However, to build up this cash value, you must pay higher premiums in the earlier years of the policy. Cash value life insurance may be one of several types; whole life, universal life and variable life are all types of cash value insurance.
Change of Beneficiary Form
A form provided by the insurer that the policyowner must complete in order to change the beneficiary on a policy.
Child Rider
Rider which provides insurance to the insured's child(ren).
Claim
A request for payment of a loss which may come under the terms of an insurance contract.
Claimant
A first or third party who asserts right of recovery.
Claims Notification Clause
A clause in a policy which provides for prompt notification of claims and commonly designates a specific adjuster to receive notice and deal with the claim.
Collateral Assignment
A temporary transfer of some, but not all, policy rights to a lender to provide security for a loan.
Commission
The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing the insurance.
Commissioner
A state officer who administers the state's insurance laws and regulations. In some states, this regulator is called the director or superintendent of insurance.
Concealment
Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.
Conditional Receipt
A receipt given for premium payments accompanying an application for insurance. If the application is approved as applied for, the coverage is effective as of the date of the prepayment or the date on which the last of the underwriting requirements, such as a medical examination, has been fulfilled.
Conservation
The attempt by the insurer to prevent the lapse of a policy.
Consideration
One of the elements for a binding contract. Consideration is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policy holder in the application.
Contest, policy
A court action challenging the validity of a policy.
Contingent Owner
The person to succeed as owner of a life insurance policy if the original owner dies.
Contract
A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.
Contract Law
The portion of civil law that interprets written agreements between parties and resolves disputes between them.
Conversion Privilege
A privilege granted in an insurance policy to convert to a different plan of insurance without providing evidence of insurability.
Convertible Term Insurance
Term insurance which can be exchanged, at the option of the policy holder and without evidence of insurability, for another plan of insurance. Also known as credit life insurance. May take the form of term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase, or other obligation, in case of death.
Cost Basis
An amount attributed to an asset for income tax purposes; used to determine gain or loss on a life insurance contract to determine the value of a gift.
Cost-of-Living Rider
Benefit that can be added to a life insurance policy under which the policy owner can purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.
Cost of pure risk
All costs related to pure risk which include, from the perspective of shareholders, retained risk, loss prevention costs and insurance costs.
Coverage
The scope of protection provided under a contract of insurance; any of several risks covered by a policy.
Cross liability clause
Obligates an insurer to protect each insured separately.
Cross Purchase Agreement
Specifies the terms for the surviving partners or shareholders to buy a deceased's share of the business's ownership.
Cumulative Premium
The total amount paid over the course of a specified amount of years.
Current with Reentry Premiums
Non-guaranteed premiums at the time of re-entry; applicable to certain term life insurance policies.
Cut-through endorsement
An endorsement to an insurance contract stating that reinsurance proceeds will be paid directly to the named payee in the event of an insurer's insolvency.
Death Benefit
A payment made to a designated beneficiary upon the death of the employee annuitant.
Decreasing Term Insurance
Level Premium Term insurance with death benefits that decrease each policy anniversary. The death benefit may decrease according to a schedule that fits a declining need, such as a loan balance.
Deferred Annuity
Annuity payments that will begin at some future date.
Deferred Compensation
Arrangements by which compensation to employees for past or current services is postponed until some future date.
Direct Beneficiary
The named beneficiary, to whom death proceeds will be paid directly upon the insured's death.
Disability Insurance (DI)
A form of insurance coverage that provides a portion of income lost as the result of a total or partial disability caused by either an accident or an illness.
Disability Overhead Expense (DOE)
A reimbursement plan designed to cover business expenses during the total or partial disability of a professional or business person.
Dividend
A refund of part of the annual premium, which is left over after the company has set aside the necessary reserve.
Domestic Insurer
An insurance company is a domestic company in the state in which it is incorporated.
Double Indemnity
A policy provision usually associated with death, which doubles payment of a designated benefit when certain kinds of accidents occur.
Earned Premium
That portion of a policy's premium payment for which the protection of the policy has already been given. For example, an insurance company is considered to have earned 75 percent of an annual premium after a period of nine months of an annual term has elapsed.
Economic Policy
Special type of participating whole life insurance in which the dividends are used to buy term insurance or paid-up additions equal to the difference between the face amount of the policy and some guaranteed amount.
Education Fund
One of the uses of life insurance. It is designed to provide money for a child's education should the breadwinner of the family die.
Effective Date
The date on which the insurance under a policy begins.
Electronic Funds Transfer (EFT)
A transaction that allows payers to have premium payments drawn directly from their bank accounts, eliminating the need to write checks.
Eligibility Date
The date on which an individual member of a specified group becomes eligible to apply for insurance under the (group life or health) insurance plan.
Eligibility Period
A specified length of time, frequently 31 days, following the eligibility date during which an individual member of a particular group will remain eligible to apply for insurance under a group life or health insurance policy without evidence of insurability.
Elimination Period
The period of time between the date the illness or disability commences and the beginning of the benefit payment period. It is sometimes referred to as the Qualifying Period.
Emergency Fund
One of the uses of life insurance which provides money for the emergency expenses of a deceased's family prior to the final settlement of the estate.
Endorsement
An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract.
Endow
When an insurance policy's guaranteed cash value equals the initial death benefit, it is said to "endow" or mature. Whole Life contracts typically endow at the insured's age 100.
Endowment Insurance
An insurance policy that pays a stated amount at the end of a specified period or upon the death of the insured if it occurs within that period.
Entity Plan
The arrangement whereby the business, rather than an individual owner, purchases the insurance that will be used to secure the business in the event of an owner's death.
Estate Planning
Planning for the orderly handling and administration of an estate upon the death of the owner. This usually involves drawing up a will and setting up trusts and insurance, with the intention of minimizing loss to the estate value incurred by estate taxes and administrative expenses.
Evidence of Insurability
Any statement of proof of a person's physical condition and/or other factual information affecting his/her acceptance for insurance.
Examiner
A physician appointed by the medical director of a life insurer to examine applicants.
Exclusion
Provision that indicates a circumstance or event, such as an act of war, for which benefits will not be paid.
Executive Bonus Plan
A plan whereby an employee owns a life insurance policy that was purchased, all or in part, by the employer. The employee treats the employer's payments as reportable income for tax purposes. The employer deducts its payments as compensation. Also known as an Employee Bonus Plan.
Expected Mortality
The number of deaths which theoretically will occur among a group of people during a given period of time, according to the mortality table in use.
Expense Charges
The charges assessed against a policy to cover part or all of the insurance company's acquisition and maintenance expenses related to issuing and servicing the policy, including charges covering various federal, state and local taxes.
Expiration Date or Expiry
The date on which the insurance policy ceases to protect the policyowner.
Extra Premium or Extra Percentage Table
The amount charged in addition to the regular rate to cover any extra hazard or special risk. Usually this premium is shown as a percentage of the standard premium. A form of Sub-Standard Risk rating.
Face Amount
The amount stated on the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions or acquired through the application of policy dividends, and can be reduced by loans or withdrawals.
Face Page
The first page of a life insurance policy. It includes basic information such as the policy number, type of policy, amount of insurance and premium amount, as well as the name of the insured, the owner and the beneficiary.
Facility of Payment
A contractual provision that allows the insurer, under stated conditions, to pay insurance benefits of up to $1,000 to a person or persons other than the insured, the designated beneficiary, or the insured's estate.
Fair premium
The premium level that is just sufficient to fund an insurer's expected costs and provide insurance company owners with a fair return on their invested capital.
Family Policy
A life insurance policy providing coverage on all or several family members in one contract. The primary breadwinner's coverage is typically Whole Life insurance, with the spouse and children, including those born after the policy is issued, insured with small amounts of Term Life insurance.
Fiduciary
A person who holds something in trust for another.
Fidelity Bond
Bond that protects an employer against dishonest or fraudulent acts of employees, such as embezzlement, fraud, or theft of money.
Fifteen-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for fifteen years.
Final Expenses
Immediate expenses incurred at the time of a person's death. These include funeral costs, court expenses associated with probating his or her will, current bills or debt, and taxes.
Five-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for five years.
Fixed Amount Option
Life insurance settlement option in which the policy proceeds are paid out in fixed amounts.
Fixed Annuity
Annuity whose periodic payment is a guaranteed fixed amount.
Fixed Expenses
Fixed expenses are those not directly related to a policy (for example: a premium tax or the payment of a commission associated with the sale of a policy). Includes: advertising, accounting, planning, rent, computer facilities, etc. These expenses must be allocated to each "block" of policies sold; the distribution is discretionary and can be critical. Some insurers assume too many (or too few) policies will be sold, thereby reducing (or increasing) the fixed expense factor assumed in the pricing of the policy. This may lead to lower credits or increased policy charges.
Fixed Period Option
Life insurance settlement option in which the policy proceeds are paid out in fixed amounts.
Flexible Premium Policy or Annuity
A life accident policy or annuity under which the policy holder or contract holder may vary the amounts or timing of premium payments.
Flexible Premium Variable Life Insurance
A life insurance policy that combines the flexible premium feature of Universal Life insurance with the equity-based benefit feature of Variable Life insurance. Cash values are not guaranteed and the death benefit usually has little or no guarantee. Policy values depend on the performance of a separate account.
Foreign Insurer
An insurer is a foreign company in any state other than the one in which it is incorporated.
Fortuitous Loss
Unforeseen and unexpected loss that occurs as a result of chance.
Franchise Insurance
Insurance under individual contracts issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premiums and remit them to the insurer. The insurer usually agrees to waive its right to discontinue or modify any individual policy, unless its simultaneously discontinues or modifies all other policies in the same group.
Fraternal Insurance
Insurance provided by fraternal orders or societies to their members. Such insurance may be written on an assessment or legal reserve basis
Fraternal Life Insurance
Life insurance provided by fraternal orders or societies to their members.
Fraternal Society
A social organization that provides insurance for its members.

Free-Look Period
A provision required in most states whereby policyowners have a period of time – usually, 10, 20 or 30 days, depending on the state – to examine their newly issued policy, and return it for a full refund of premium if not satisfied for any reason.
Funeral Expenses
Expenses incurred for a funeral and burial. These can include casket, vault, grave plot, headstone and funeral director.
Future Increase Option
A provision found in some insurance policies that allows the insured to purchase additional disability income insurance at specified future dates regardless of the insured's physical condition.
General Agency System
Type of life insurance marketing system in which the general agent is an independent businessperson who represents only one insurer, is in charge of a territory, and is responsible for hiring, training, and motivating new agents.
Generation Skipping Tax
A transfer tax imposed on a gift or inheritance to those at least two generations younger than the person making the transfer.

Gift
A voluntary transfer of property to another person, made without receiving consideration in return.
Grace Period
A period of time after a premium due date, usually 30 or 31 days, during which an insurance policy remains in force and the overdue premium may be paid without penalty.
Gross Premium
The full amount of premium, ignoring taxes or deductions.
Graded Commission Scale
A commission scale providing for payment of a high first-year commission and lower renewal commissions.
Gross estate
All of the assets and liabilities owned at death.
Gross Negligence
The failure to perform a manifest duty in reckless disregard of the consequences as affecting the life or property of another.
Guaranteed Insurability
An option that permits the policy holder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.
Gross Rate
The sum of the pure premium and a loading element.
Guaranteed Investment Contract
An investment contract with an insurer in which the insurer guarantees both principal and interest on a pension contribution.
Guaranteed Premiums
The guaranteed maximum payment for the purchased policy.
Guaranteed Purchase Option
Benefit that can be added to a life insurance policy permitting the insured to purchase additional amounts of life insurance at specified times in the future without requiring evidence of insurability.
Guaranteed Renewable
A contract that the insured has the right to continue in force by the timely payment of premiums (1) until at least age 50 or (2) in the case of a policy issued after age 44 for at least five years from its date of issue, during which period the insurer has no right to make unilaterally any change in any provision of the contract while the contract is in force, except that the insurer may make changes in premium rate by classes.

Guaranteed Renewable Contract
A contract that the insured person or entity has the right to continue in force by the timely payment of premiums for a substantial period of time, during which period the insurer has no right to make unilaterally any change in any provision of the contract, while the contract is in force, other than a change in the premium rate for classes of policy holders.
Guaranteed Renewable Contract
A health policy which the company guarantees to renew for life or until the insured reaches a specified age, usually 65.
Guaranty Fund
A fund, derived from assessments against solvent insurance companies, to absorb losses of claimants against insolvent insurance companies.
Hazard
The exposure of vulnerability to injury, loss or damage.
Home Office
The headquarters of an insurance company, that typically houses the actuarial, claims, investment, law, marketing and service areas.
Hospice
Health care facility providing medical care and support services such as counseling to terminally ill persons.
Human Life Value
For purposes of life insurance, the present value of the family's share of the deceased provider's future earnings.
Immediate Annuity
An annuity providing for payment to begin immediately.
Incidents of Ownership
Various rights that may be exercised under the policy contract by the policyowner. Some of the incidents of ownership may include rights: (1) to cash-in the policy, (2) to receive a loan on the cash value of the policy, and (3) to change the beneficiary designation.
Incontestability Clause or Period
Life policies provide that, except for non-payment of premiums and certain other circumstances, the policy shall be incontestable after the policy has been in force for two years during the lifetime of the insured.
Indemnification
Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.
Indemnity
Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.
Independent Adjustor
Claims adjustor who offers his or her services to insurance companies and is compensated by a fee.
Independent Agent
An independent business person who usually represents two or more insurance companies in a sales and service capacity and who is paid on a commission basis.
In-Force Policy
Existing insurance policies for which the premiums are being paid or for which premiums have been fully paid.
Inspection Report: Documentation of an application or a summary statement of the proposed insured's occupation, residence, health history, lifestyle and general financial status. This report is prepared by the insurer or an investigating agency for consideration in the underwriting process.
Installment Income
The settlement option, or payment plan, which provides that the proceeds of a life insurance policy or annuity contract will be paid in a fixed amount at regular intervals for as long as the proceeds last, or for a fixed number of months or years.
Insurability
Acceptability by the insurer of an applicant for insurance based on factors such as the person's age, health, occupation, etc.
Insurable Interest
The fact that the person effecting the insurance must suffer a financial loss at the death of the proposed insured. For the policy to be issued, both the owner and beneficiary must have an insurable interest.
Insurance
A system for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration (premium), to assume the specified losses suffered by the insured.
Insurance Commissioner
The top insurance regulatory official in a state.
Insurance Department
A governmental bureau in each state charged with the administration of insurance laws, including the licensing of agents and insurers and their regulation and examination. In some jurisdictions the department is a division of another state department or bureau.
Insured
A person or organization covered by an insurance policy, including the "named insured" and any other parties for whom protection is provided under the policy terms.
Insurer: The party that provides insurance coverage, typically through a contract of insurance.
Interest-Adjusted Method
A method of determining a policy's annual net cost by incorporating an interest factor into the calculation to reflect the time-value of money.
Interest-Adjusted Net Payment Index
An index of the average annual net payment (premium minus the equivalent annual dividend), which incorporates the time-value of money.
Interest-Adjusted Surrender Cost Index
This index is the average annual cost of insurance upon surrender, which incorporates the time-value of money.
Interest Income Option
One of the settlement options, or payment plans, under which the proceeds of a life insurance policy are held by the company to earn interest that is paid periodically to the beneficiary. The total insurance benefit is not paid out until some specified date in the future, but there are limits as to the length of time a principal sum may be held.
Interest Rate
The rate of interest credited on a policy's cash value.
Irrevocable Beneficiary
A beneficiary that cannot be changed without their written consent.
Irrevocable Trust
A trust that cannot be revoked or amended by the party who establishes it. This type of trust is often established when life insurance is purchased to protect an estate.
Issue Date
The date from which suicide and incontestability periods are calculated.
Joint and Survivor Option
A life insurance settlement option that allows the beneficiary to have the death proceeds paid out in the form of a joint and last survivor annuity.
Joint Plan
A life insurance plan that insures two or more lives and pays proceeds at the time of the first death.
Jumbo Risk
A risk involving exceptionally high benefits.
Key Person Insurance: Insurance designed to protect a business firm against the loss of income resulting from the death or disability of a key employee. Lapse
The termination or discontinuance of an insurance policy due to non-payment of a premium.
Lapse Notice
Written notice by an insurer that the policy has lapsed.
Lapsed Policy
A policy terminated for non-payment of premiums. The term is sometimes limited to a termination occurring before the policy has a cash or other surrender value.
Lapse Ratio
Surrenders and lapses as a percentage of average insurance in force for the year.
Legal Reserve Company
A company that maintains policy reserves according to the standards established by the insurance laws of the various states.
Level Premium
Rating structure under which the premium level remains the same throughout the life of the policy.
Level Premium Life Insurance
Life insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The overpayments in the early years, together with the interest that is to a earned, serve to balance out the underpayments of the later years.
Level Term Insurance
A type of Term Life policy where the face value remains the same from the effective date until the expiration date.
Life Expectancy: The average number of years of life remaining for persons of a given age according to a particular mortality table.
Life Income
A settlement option under which equal installments are paid as long as the beneficiary lives, even if the principal has been exhausted.
Life Insurance
Insurance providing for payment of a specified amount on the insured's death, either to his or her estate or to a designated beneficiary; or in the case of an endowment policy, to the policy holder at a specified date.
Life Insurance in Force
The sum of the face amounts, plus dividend additions, of life insurance polices outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.
Life Insurance Trust
A type of life insurance policy where a trust company is named as the beneficiary and distributes the proceeds of the policy under the terms of the trust agreement.
Limit
Maximum amount a policy will pay either overall or under a particular coverage.
Living Benefits
Benefits available to owners of life insurance contracts while the insured is still living. This term may refer to the availability of policy loans and collateral assignments, but it is typically used to refer to advances on policy proceeds taken in the case of terminal illness. Also known as Accelerated Death Benefit.
Loan
Borrowing from the insurer and securing the amount of the loan with the cash value in the life insurance policy. If the insured dies when there is an outstanding loan balance, the amount of the loan and any unpaid interest will be deducted from the proceeds.
Loan Value
The amount that can be borrowed from the insurer, using the policy cash value as collateral.
Long Term Care Policy
A plan designed to cover the insured's long-term care (nursing home) costs.
Lump Sum
A method of settlement whereby the beneficiary receives the entire proceeds of a policy at once rather than in installments.
Material Misrepresentation
A statement made to the underwriter before acceptance of risk, which is material to his decision in accepting and rating the risk.
Mature
When an insurance policy's guaranteed cash value equals the initial death benefit, it is said to "endow" or mature. Whole Life contracts typically endow at the insured's age 100.
Maturity Date
The date which the policy endows for its total face amount.
Maturity Value
The amount payable under a Whole Life insurance policy if the insured person lives to the last age on the mortality table on which the values of the contract were based.
Medical Examination
A medical history and exam completed by a doctor that the insurer may require of the applicant during the underwriting process – typically, paid for by the life insurer underwriting the application.
Medical Information Bureau (MIB)
A data pool service that stores confidential reports on the health histories of persons who, in the past, have applied for insurance from other member companies. Most insurers subscribe to this bureau to get more complete underwriting information.
Misrepresentation
Act of making, issuing, circulating, or causing to be issued or circulated any written or verbal statement that does not represent the correct policy terms. Also, use of a name or title for any policy or class of policies that does not reflect its true nature.
Moral Hazard
Hazard arising from any nonphysical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss for instance, bad habits, low integrity, poor financial standing.
Mortality
The frequency of deaths in proportion to a specific population.
Mortality Rate
The number of deaths in a group of people, usually expressed as deaths per thousand.
Mortality Table
A table showing how many members of a group, starting at a certain age, will be alive at each succeeding age. It is used to calculate the probability of dying in, or surviving through, any period, and for the valuation of an annuity. To be appropriate for a specific group, it should be based on the experience of individuals having common characteristics, such as sex or occupation.
Mortgage Protection Insurance
A type of Term Life policy which pays off the balance of a mortgage upon the death of the insured. Typically, the death benefit decreases according to a schedule that fits the declining payoff requirements of the mortgage.
Multi-Year Premium Mode
A premium payment option where future annual premiums are paid in advance at a discount.
Mutual Insurance Company
An insurance company in which the ownership and control is vested in the policy holders and a portion of surplus earnings may return to policy holders in the form of dividends. No capital stock exists.
Mutual Fund
Pooled money from shareholders that is invested in a variety of securities, including stocks, bonds and money market securities. Mutual funds offer the individual investor the advantages of diversification and professional management.
Net Cost
The out-of-pocket cost of owning any particular life insurance policy.
Non-Contributory
A term applied to employee benefit plans under which the employer bears the full cost of the benefits for the employees. One hundred percent of the eligible employees must be insured.
Non-Forfeiture Option
One of the choices available if the policy holder discontinues premium payments on a policy with a cash value. This, if any, may be taken in cash, as extended term insurance or as reduced paid-up insurance.
Non-Medical Insurance (Non-Med)
Life insurance issued based on the insured's statement of health with no medical examination required.
Non-Medical Limit
The maximum face value of a policy that a given company will issue without the applicant taking a medical examination.
Non-Participating Policy
A life insurance policy in which the company does not distribute to policy holders any part of its surplus. Note should be taken that premiums for nonparticipating polices are usually lower than for comparable participating polices. Note that some nonparticipating polices have both a maximum premium and a current lower premium. The current premium reflects anticipated experience that is more favorable than the company is willing to guarantee, and it may be changed from time to time for the entire block of business to which the policy belongs.
Nonresident Agent
An agent licensed to write insurance in a state in which he or she does not live.
Non-Tobacco Status
No cigarette or tobacco usage based upon company guidelines.
Occupational Hazards: Occupations which expose the insured to greater than normal physical danger by the very nature of the work in which the insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected.
Operating Ratio: The sum of expenses and losses expressed as a percent of earned premium.
Ordinary Life Insurance: Life insurance usually issued in amounts of $1,000 or more with premiums payable on an annual, semi-annual, quarterly or monthly basis.
Ordinary Life: Permanent insurance that provides for the payment of proceeds at death or at policy maturity (if the insured is still living at that time). Also known as Whole Life Insurance.
Other Insured Rider: Rider which provides coverage to an eligible business or family member other than the insured.
Overhead Expense Insurance: Insurance for business owners to help offset continuing business expenses if the owner is disabled
Paid-up Insurance
Insurance on which all required premiums have been paid. The term is frequently used to mean the reduced paid-up insurance available as a non-forfeiture option.
Paramedical Examination
Physical examination of an applicant by a trained person other than a physician.
Participating Insurance
Insurance issued by an insurance company providing participation in dividend distribution.
Participating Policy
A life insurance policy under which the company agrees to distribute to policy holders the part of its surplus which its Board of Directors determines is not needed at the end of the business year. Such a distribution serves to reduce the premium the policy holder had paid. See also: Policy dividend; Nonparticipating policy.
Payor
The person making premium payments on a policy.
Peril
The cause of a loss insured against in a policy.
Permanent Life Insurance
Type of life insurance other than term insurance which accrues cash value and is designed for long-term, or permanent, needs of a policy holder. Includes universal and variable life, among others.
Persistency
The degree to which policies stay in force through the continued payment of renewal premiums.
Persistency Bonus (Policy Owner's)
An enhancement to the policy's benefits, usually in the form of additional interest credits and/or reduced charges, for policies that remain in force for a certain period. The bonus may or may not be guaranteed in the contract.
Personal Representative
A person appointed through the will of a deceased or by a court to settle the estate of one who dies.
Policy
The legal document issued by the company to the policy holder, which outlines the conditions and terms of the insurance; also called the policy contract or the contract.
Policy Dividend
A refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience.
Policy Fee
Fee added to the periodic premium payments to cover undefined policy costs.
Policy limit
The maximum amount a policy will pay, either overall or under a particular coverage.
Policy Loan: A non-recourse loan from the insurer to the policyowner secured by the policy's cash value.
Policy Owner
The individual who owns an insurance policy and who has all contractual rights. The policyowner is not necessarily the same person as the insured or the payor.
Policy Reserves
The measure of the funds that a life insurance company holds specifically for fulfillment of its policy obligations. Reserves are required by law to be so calculated that, together with future premium payments and anticipated interest earnings, they will enable the company to pay all future claims.
Policy Term
That period for which an insurance policy provides coverage.
Policy Holder
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.
Policy Holders' Surplus
Sum left after liabilities are deducted from assets. Sums such as paid-in capital and special voluntary reserves are also included in this term. This surplus is an additional financial protection to policy holders in the event a company suffers unexpected or catastrophic losses. The financial base that permits a company to sell insurance.
Pool
A method of distributing insurance risk, whereby, the individual participants share overall risk with the other participants.
Pooling arrangement
An agreement to divide any losses that might occur equally among two or more people, typically with each paying the average loss.
Preexisting Condition
A physical and/or mental condition of an insured which first manifested itself prior to the issuance of his/her policy or which existed prior to issuance and for which treatment was received.
Preferred and Preferred Plus
The best premium rate classes for unimpaired, non-smoking applicants that are in better than average health.
Premium
The amount paid to an insurer or reinsurer in consideration of his acceptance of a risk.
Premium Discount
Periodic Payment discount given by a company.
Premium financing
A policy holder contracts with a lender to pay the insurance premium on his/her behalf. The policy holder agrees to repay the lender for the cost of the premium, plus interest and fees.
Premium Loan
A policy loan made for the purpose of paying premiums.
Present Value
Refers to a method that applies an assumed rate of interest to compute today's value for a future payment.
Premium Tax
A tax, imposed by each state, on the premium income of insurers doing business in the state.
Pricing Elements
The elements used in pricing a policy, principally investment earnings, mortality and expenses. If actual experience is better than the assumptions made in determining the policy guarantees, the difference after reflecting surplus needs is available for distribution to policy holders through the company's dividend scale or other non-guaranteed pricing structure.
Primary Beneficiary: The person who, upon the insured's death, has the first right to receive insurance proceeds.
Primary Insurance
Insurance that pays compensation for a loss ahead of any other insurance coverages the policy holder may have.
Principal
One for whom an agent acts, especially as to contractual dealings with third persons.
Principal Sum
The amount payable in one sum in the event of accidental death and in, some cases, accidental dismemberment. When a contract provides benefits for both accidental death and accidental dismemberment, each dismemberment benefit is an amount equal to the principal sum or some fraction thereof.
Privacy
(1) The right to be let alone; (2) in insurance contexts, the right to fair personal information practices. Probate: The court-supervised process of validating or establishing a distribution for assets of a deceased including the payment of outstanding obligations.
Proceeds
The amount payable under the terms of a life insurance policy upon the insured's death or upon the maturity of an endowment.
Producer
A term applied to an agent, solicitor or other person who sells insurance.
Projected Rates
Policy payment that is currently being charged by the company after the guarantee period.
Profit Commission
A commission payable on the profit generated under an insurance or reinsurance contract as an encouragement to maintain the flow of profitable business.
Proposed Insured
The person named in a life insurance application as the person whose life is to be covered by the insurance, if the application is approved.
Prospectus
A form which is often part of the proposal form, giving details of the cover available with particulars of extra benefits and rebates.
Provision
A statement or clause, found in an insurance policy, to establish some term of the contract.
Quantity Discount: A premium discount given for the purchase of a policy with a larger face amount. Rate: The pricing factor upon which the insurance buyer's premium is based.
Rate Banding: Term Life insurance death benefit thresholds, whereby, the rate per thousand decreases as the amount of death benefit increases – similar to a quantity discount.
Rate Per Thousand: Price per unit (or $1,000) of death benefit. Term premiums are calculated by multiplying the rates per thousand of death benefit, then adding the Policy Fee.
Rated Policy: Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has impaired health or a hazardous occupation.
Rating Territory: A geographical grouping in which like hazards tend to equalize and permit the establishment of an equitable rate for the territory.
Rebating: The granting of any form of inducement, favor, kickback or advantage to the purchaser of a policy, which is not available under the standard terms of the policy. Rebating is a penal offense in some states, whereby both the agent and the person accepting the rebate can be punished.
Re-Entry: A policy provision under which the insured, at the end of the specified term period, can renew (re-enter) the policy at a rate based on their attained age for another term period. Re-entry requires the insured to provide evidence of insurability. Also referred to as Re-Qualification.
Reinstatement: The period after the grace period (usually five years) during which the policy can be restored from a lapsed status through submission of acceptable evidence of insurability and unpaid premiums plus interest. Some companies allow reinstatement without evidence of insurability during the 31 days following the grace period if the insured is alive.
Renew: To continue the policy for another period of time.
Renewable Term: Term insurance which can be renewed at the end of the term, at the option of the policyholder and without evidence of insurability, for a limited number of successive terms. The rates increase at each renewal as the age of the insured increases.
Renewal: Continuance of coverage under a policy beyond its original term by the insurer's acceptance of the premium for a new policy term.
Replacement: The act of terminating a policy with one insurer for a new policy with another insurer. This practice is regulated by most states because often it is not in the insured's best interest to make such a switch.
Replacement Form: A state-specific form that must be completed if the applicant is replacing existing coverage. The replacement form notifies the existing insurer that the applicant is replacing their policy with a policy from another company.
Replacement ratio: The percentage of income before retirement that is required to be replaced to maintain the same standard of living after retirement.
Representative: An agent or sales representative.
Reserve: The amount of money an insurance company holds which, with future premiums and an assumed rate of interest, will pay all contractual obligations as they fall due.
Resident Agent: An agent domiciled in the state in which he or she writes insurance.
Restrictions: Factors affecting what actions can be taken on a policy, such as ownership restriction because of a divorce or tax levy.
Retention Limit: The maximum amount of insurance an insurer can retain before ceding business to a reinsurer. The maximum amount may depend on the insured's age, health, coverage in force, as well as the insurance company's financial condition.
Revocable Beneficiary: A beneficiary whose rights are subject to the rights of the policyowner who may revoke or change the beneficiary designation and exercise any ownership rights under the policy without the beneficiary's consent.
Rider: A special provision attached to a policy that expands or restricts the benefits otherwise payable or excludes certain conditions from coverage..
Risk: In life insurance, it is the probability of mortality.
Risk Classification: An underwriting process used to determine the appropriate price category or Premium Rate Class of the proposed insured, according to risk factors associated with that person's health condition, occupation, lifestyle, etc.
Rollover: The tax-free transfer of accumulated assets from a qualified retirement plan to an IRA, which must be completed within 60 days of the termination of the original plan.
Saving Age
A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the insured at issue lower than it actually was in order to get a lower premium. Most policies can be backdated up to six months. Also referred to as Saving Age.
Scheduled Premiums
Refers to planned premiums that are scheduled at the time of issue.
Secondary Beneficiary
A person(s) designated by the policyowner to receive policy proceeds if the Primary Beneficiary is deceased at the time benefits become payable. Also referred to as Secondary Beneficiary.
Second-To-Die
A type of life insurance policy that insures the lives of two people, typically a husband and wife. The death benefit proceeds are payable upon the second death and used to satisfy the estate tax. Available as either Whole Life or Universal Life, these policies feature premiums that are often less expensive than buying two separate policies. Also referred to as Joint and Last Survivorship Life Insurance or Joint Survivorship Life Insurance.
Select Mortality
Descriptive of the mortality experience of newly underwritten insured's. This period of discernibly different (favorable) mortality usually lasts 5 to 15 years.
Settlement Options
The ways in which policy holders or beneficiaries may choose to have benefits paid other than a lump sum.
Short Term
Preliminary Term insurance, not to exceed 11 months, which may be attached to a policy to change the anniversary date for the purpose of more conveniently spacing premium payments.
Simplified Underwriting: An underwriting process that applies a less strict analysis of risk factors. Participants in group plans may qualify for this abbreviated form of underwriting.
Single Premium Life Insurance
A life insurance plan that requires only one premium and is guaranteed to remain paid-up throughout the insured's lifetime.
Split Dollar Plan
An arrangement in which two parties, usually an employer and employee, jointly purchase the policy, pay premiums and share in the policy's benefits.
Spousal Discount
A discount for purchasing coverage together as husband and wife from the same insurance company.
Standard or Standard Plus
An underwriting rate classification for non-smokers who have minor health impairments.
Standard Risk
An average risk, not subject to rate loadings or restrictions because of poor health.
Step-Rate Premium
A rating structure in which the premiums increase periodically at pre-determined times such as policy years or attained ages.
Stock Life Insurance Company
A life insurance company owned by stockholders who elect a board to direct the company's management. Stock companies, in general, issue nonparticipating insurance, but may also issue participating insurance.
Straight Life Insurance
Whole life insurance on which premiums are payable for life.
Sub-Standard Risk
An individual, who, because of health history or physical limitations, does not measure up to the qualification of a standard risk.
Suicide Clause
A policy provision usually stating that if the insured dies by suicide within two years of the date of issue, the amount payable would be limited to the total premiums paid, less any policy debt. The full benefit would only be paid if the suicide occurs after the first two policy years.
Surplus
The amount by which the value of an insurer's assets exceeds its liabilities, i.e., the net worth of an insurance company.
Surrender
To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policy holder may exercise one of the non-forfeiture options at the time of surrender.
Surrender Charge
An amount retained by the issuer of a life insurance policy when a policy is canceled, typically assessed only during the first five to ten years of a policy.
Survivorship Life Insurance
A type of life insurance policy that insures the lives of two people, typically a husband and wife. The death benefit proceeds are payable upon the second death and used to satisfy the estate tax. Available as either Whole Life or Universal Life, these policies feature premiums that are often less expensive than buying two separate policies. Also referred to as Joint and Last Survivorship Life Insurance or Joint Survivorship Life Insurance.
Tax-Deferral
Postponing the payment of income taxes until some point in the future, often at retirement. Generally, the cash value growth inside life insurance is eligible for deferral, unless the amount of cash received through surrender exceeds the policy's tax basis.
Tax-Payer Identification Number (TIN)
The policy owner's Social Security number. The insurer must have a certified tax-payer identification number to avoid backup withholding when there is taxable gain.
Ten-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for ten years.
Term Conversion
Many Term policies come with conversion rights guaranteeing that, for a specified period of time, the policy can be converted to a permanent plan for the equivalent amount of coverage, without having to provide additional evidence of insurability.
Termination
Termination of a policy upon the policy owner's failure to pay the premium within the grace period.
Term Life Insurance
A life insurance plan that provides death benefit protection only and for a specified period of time (term). The policy pays benefits only if the insured dies during the term.
Tertiary Beneficiary
In life insurance, a beneficiary designated as third in line to receive the proceeds or benefits if the primary and secondary beneficiaries do not survive the insured.

Third-Party Owner: A policyowner who is not the insured.

Thirty-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for thirty years.
Trust
A legal instrument allowing one party to control property for the benefit of another.

Transfer for Value
Transfer of the ownership of a life insurance contract for valuable consideration.

Trust
A legal instrument allowing one party to control property for the benefit of another.
Twenty-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for twenty years.

Twenty-Five Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for twenty-five years.

Twisting
The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policy holder in one company to lapse, forfeit or surrender his insurance for the purpose of taking out a policy in another company.
Ultimate Mortality
Descriptive of the insured's mortality experience after the select period, when mortality increases due to health deterioration.

Underwriter
An employee of a life insurance company who is trained to evaluate the insurability and determine the classification of persons applying for insurance protection.

Underwriting
The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.

Underwriting Classes
Classification given to an individual based on personal and family health history.

Underwriting Profit or Loss
The amount of money which an insurance company gains or loses as a result of its insurance operations. It excludes investment transactions and federal income taxes.

Unearned Premium
The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run.

Uniform Premium
A rating structure in which one premium applies to all insured, regardless of age, sex, or occupation.

Unilateral Contract
A contract having promises by one party only.

Uninsurable Risk
One not acceptable for insurance due to excessive risk.

Unisex Rates
Rates that are used for both male and females.

Variable Life Insurance: Life insurance under which the benefits relate to the value of assets behind the contract at the time the benefit is paid. The amount of death benefit payable would, under variable life policies that have been proposed, never be less than the initial death benefit payable under the policy.

Waiver of Premium (WP): An optional policy provision that continues the coverage without further premium payments if the insured becomes totally disabled.

War Clause: A provision in a life insurance policy excluding liability of an insurer if a loss is caused by war.

Whole Life Insurance: Permanent insurance which provides, at minimum, a level death benefit upon the insured's death, or a cash endowment upon policy maturity that is equal to the death benefit. In addition, these policies accumulate cash values on a tax-deferred basis. A plan of insurance for the whole of life. It includes straight life on which premiums are payable until death.

Will: The legal statement of a person's wishes concerning the disposal of his or her property after death.

Yearly Renewable Term (YRT): A Term Life insurance policy that provides a level death benefit with premiums that increase each year with the insured's age. YRT provides financial protection only in the event of death and has no cash value. Also known as Annual Renewable Term (ART) or One Year Term.


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