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Glossary of Insurance Terms


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Accelerated Benefits Rider A life insurance rider that allows for the early payment of some portion of the policy's face amount should the insured suffer from a terminal illness or injury.

Accidental Death Benefit Rider A life insurance policy rider providing for payment of an additional cash benefit related to the face amount of the base policy when death occurs by accidental means.

Accidental Death Insurance Insurance providing payment if the insured's death results from an accident.

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

Annually Renewable Term A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability. Also called yearly renewable term.

Annuitant The person entitled to receive annuity payments or who now receives them.

Annuities  Annuities are contracts sold by life insurance companies (the seller must be a licensed insurance entity in your state). In their simplest form, you pay a sum of money (either a lump sum or a series of payments) and the insurance company makes periodic payments to you, beginning on the date in your contract and continuing for the rest of your life. The earnings on your annuity payments are not taxable during the accumulation phase of your agreement; the annuity payments are taxable as income when you receive them permit you to place your payments in professionally managed funds, similar to mutual funds, and to control how these payments are invested during the life of your contract. Unlike mutual funds, variable annuities have insurance provisions and guarantees to preserve the value of the principal you pay into the annuity.

Annuity certain  A contract that provides an income for a specified number of years, regardless of life or death.

Application   A statement of information made by a person applying for life insurance. It helps the life insurance company assess the acceptability of risk.

Assignment The transfer of the ownership rights of a Life Insurance policy from one person to another.

Attained Age Your current age. Your attained age is one of the factors life insurance companies use to determine your premiums. The older you are, the greater chance you'll die while you are covered - so the higher your premium.

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 issue lower than it actually was in order to get lower premium. State laws often limit to six months the time to which policies can be backdated.

Beneficiary The person designated to receive the death benefit when the insured dies.

Broker   A financial professional who oversees a client's investment and/or insurance portfolio.

Business life insurance  Life insurance purchased by a business enterprise on the life of a member of the firm.

Cash Value The equity amount or "savings" accumulation in a whole life policy.

Certificate A statement issued to individuals insured under a group policy, setting forth the essential provisions relating to their coverage.

Certificate Of Deposit (CD) A debt instrument issued by a bank that usually pays interest. The date of maturity ranges from a few weeks to several years.

Claim Notification to an insurance company that payment of an amount is due under the terms of the policy.

Claims-paying-ability ratings  An evaluation of the relative ability of an insurance company to honor its insurance or contractual liabilities as distinct from its debt obligations.

Closed-end fund  An investment company with a limited number of shares outstanding whose price trades like an individual security. Unlike open-end mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.

Compound interest  Interest computed on the principal plus the interest accumulated previously to the date of compounding.

Conditional Receipt Given to policy owners when they pay a premium at time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.

Contestable Clause A provision in an insurance policy setting forth the conditions under which or the period of time during which the insurer may contest or void the policy. After that time has lapsed, normally two years, the policy cannot be contested.

Contingent Beneficiary Person or persons named to receive proceeds in case the original beneficiary is not alive. Also referred to as secondary beneficiary.

Coverage Another word for insurance. Insurance companies use the term coverage to mean either the dollar amounts of insurance purchased ($200,000 of liability coverage, for example), or the type of loss covered (i.e., coverage for theft).

Conversion Privilege Allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).

Convertible Term A policy that may be changed to another form by contractual provision and without evidence of insurability.

Credit rating  An individual or company's credit history and ability to pay debts.

Death Benefit The amount of money paid to the beneficiary when the insured person dies.

Decreasing Term Insurance Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level.

Deferred annuity  An annuity providing for income payments to begin at
some future date.

Deferred compensation plan (401(k))  A plan under which the participant is
permitted to defer a portion of his gross income to a retirement plan. Such a
deferral is tax exempt for federal income tax purposes until the proceeds are
distributed.

Deferred premium  Premium not yet due but which will become due after the
end of the calendar year and prior to the next policy anniversary.

Defined benefit plan  A pension plan that promises to pay a specified amount
upon retirement. The plan states either: (1) the benefits to be received by
employees after retirement or (2) the method of determining such benefits.

Defined contribution plan  A plan under which the contribution rate is fixed
and benefits to be received by employees after retirement depend to some
extent upon the contributions and their earnings. Examples are 401(k) and
403(b) plans.

Disability benefit  A feature added to some life insurance policies providing
for waiver of premium, and sometimes payment of monthly income, if the
policyholder becomes totally and permanently disabled.

Distribution  Also see capital gains distribution.

Diversification  Blending a variety of investments to reduce investment risk.

Dividend  1. A company's payment of profits to its stockholders.
2. A mutual fund's payment of profits to its shareholders.
3. A return of part of the premium on participating insurance to reflect the
difference between the premium charged and the combination of actual
mortality, expense and investment experience.

Dividend addition  An amount of paid-up insurance purchased with a policy
dividend and added to the face amount of the policy.

Dollar-cost averaging  An investment strategy which involves regular
investments over time into the same security or mutual fund.

Double Indemnity Payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances.

Evidence of Insurability Any statement or proof of a person's physical condition, occupation, etc., affecting acceptance of the applicant for insurance.

Dow Jones Industrial Average (DJIA)   An index used to measure and
report value changes in representative stock groupings. It consists of a price
weighted average of 30 actively traded blue chip stocks (primarily of industrial
companies).

Endowment  Life insurance payable to the policyholder, if living, on the
maturity date stated in the policy, or to a beneficiary if the insured dies prior
to that date.

Equity  The net worth of a business, consisting of capital stocks, capital
surplus, earned surplus, and, occasionally, certain net worth reserves.

Equity fund  A mutual fund that invests primarily in stocks. Also known as a
stock fund.

Estate protection  A term used to refer to insurance covering the assets
owned by an insured at death.

Exchange privilege   In mutual funds, the ability to transfer money from one
fund to another within the same fund family.

Exclusions Specified hazards listed in a policy for which benefits will not be paid.

Expiry The termination of a term life insurance policy at the end of its period of coverage.

Extended term insurance  A nonforfeiture benefit under which the net cash
value of the policy is used to purchase term insurance for the amount of
coverage available under the initial policy.

Face Amount The amount of insurance provided by the terms of an insurance contract, usually found on the first page of the policy. In a life insurance policy, the death benefit.

Final Expenses 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. Depending on their circumstances, the survivors may also want to pay the outstanding balances of mortgage and loans.

Free Look Provision An individual life insurance and annuity policy provision that gives the policyowner a stated time after the policy is delivered in which to cancel the policy and receive a full refund of the initial premium payment. .

Funeral Expenses Expenses incurred for a funeral and burial. These can include casket, vault, grave plot, headstone and funeral director.

Grace Period Period of time after the due date of a premium during which the policy remains in force without penalty.

Graded Premium Policy A type of whole life policy designed for people who want more life coverage than they can currently afford. They pay a lower premium rate that increases gradually over the first three to five years and then remains constant over the life of the policy.

Guaranteed Term A form of renewable term insurance that remains in force as long as the premiums are paid on time.

Guaranteed Insurability (Guaranteed Issue) Arrangement, usually provided by rider, whereby additional insurance may be purchased at various times without evidence of insurability.

Incontestability Provision An insurance and annuity policy provision that limits the time within which the insurer has the right to avoid the contract on the ground of material misrepresentation in the application for the policy.

In Force Insurance on which the premiums are being paid or have been fully paid.

Initial face amount  The amount of coverage provided by an individual life policy when it is first issued.

Insurability All conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual's risk profile.

Insurable Interest Requirement of insurance contracts that loss must be sustained by the applicant upon the death of another and it must be sufficient to warrant compensation.

Insurance A formal social device for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration, to pay for the loss in the amount specified in the contract.

Insurance Policy The printed form which serves as the contract between an insurer and an insured.

Insured The party who is being insured. In life insurance, it is the person because of his or her death the insurance company would pay out a death benefit to a designated beneficiary.

Insurer Party that provides insurance coverage, typically through a contract of insurance.

Interest  Money paid for the use of money.

Issue age  The age of the insured at the time the insurance policy is issued.

Issue date  The date at which the coverage under the insurance policy goes into effect, or, in the case of an annuity, the date at which interest begins to accrue.

Irrevocable Beneficiary A beneficiary that cannot be changed without that beneficiary's consent.

Lapse Termination of a policy upon the policy owner's failure to pay the premium within the grace period.

Level Term Insurance Term coverage on which the face value and premiums remain unchanged from the date the policy comes into force to the date the policy expires.

Life annuity  An annuity that provides periodic benefit payments for the lifetime of the annuitant.

Life annuity with period certain  An annuity that provides periodic benefit payments for the lifetime of the annuitant and guarantees that payments will be made for at least a certain period of time, even if the annuitant dies before the end of that period.

Life Expectancy The average number of years remaining for a person of a given age to live as shown on the mortality or annuity table used as a reference.

Life Insurance An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured.

Medical A document completed by a physician or another approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.

Misrepresentation Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.

Modified Premium Policy (See Graded Premium Policy)

Mortality Charge The charge for the element of pure insurance protection in a life insurance policy.

Mortality Cost The first factor considered in life insurance premium rates. Insurers have an idea of the probability that any person will die at any particular age; this is the information shown on a mortality table.

Mortality Rate The number of deaths in a group of people, usually expressed as deaths per thousand.

Mortality Table A table showing the incidence of death at specified ages.

Occupational Hazard A condition in an occupation that increases the peril of accident, sickness, or death. It usually will mean higher premiums.

Original Age The age you were when you bought the policy.

Other Insured Rider A term rider covering a family member other than the insured that is attached to the base policy covering the insured.

Ownership All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insured. Ownership may be assigned or transferred by written request of current owner.

Para-Med (Paramedical) Examination The medical examination of an applicant for Life Insurance.

Para-Med (Paramedical) A physician, nurse, or para-med appointed by the medical director of a life insurance company to examine applicants.

Permanent Life Insurance Life insurance that provides coverage throughout the insured's lifetime and also provides a savings element (cash value)..

Policy The printed document issued to the policyholder by the company stating the terms of the insurance contract.

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.

Preferred Risk A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age.

Premium The periodic payment required to keep an insurance policy in force.

Premium Flexibility The policy holder's right to vary the amount of premium paid each month towards a universal life policy.

Primary Beneficiary In life insurance, the beneficiary designated by the insured as the first to receive policy benefits.

Primary Policy The insurance policy that pays first when you have a loss that's covered by more than one policy.

Probate Costs The legal fees and other costs incurred in the probate process, which is the legal processing of your will. Assets that you leave to other people through your will cannot be distributed until the will is probated.

Provisions Statements contained in an insurance policy which explain the benefits, conditions and other features of the insurance contract.

Rated Coverage issued at a higher rate than standard because of some health condition, or impairment of the insured.

Re-entry Option An option in a renewable term life policy under which the policy owner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability, at a premium rate specified in the policy.

Reinstatement Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

Renewable Term/Annual Renewable Term Term insurance that may be renewed for another term without evidence of insurability. Level term usually turns into renewable term with increasing premiums after the level premium period.

Replacement A new policy written to take the place of one currently in force.

Representation Statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief but that are not warranted as exact in every detail.

Revocable Beneficiary The beneficiary in a life insurance policy in which the owner reserves the right to revoke or change the beneficiary. Most policies are written with a revocable beneficiary.

Rider An attachment to a policy that modifies its conditions by expanding or restricting benefits or excluding certain conditions from coverage.

Risk The chance of injury, damage, or loss.

Risk Selection The method a home office underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and set the premium rates accordingly.

Secondary Beneficiary An alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.

Single Premium Policy A whole life policy for people who want to buy a policy for a one-time lump sum, and then be covered for the rest of their lives without paying any additional premiums.

Standard Risk Person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

Substandard Risk Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

Term Insurance Protection during limited number of years; expiring without value if the insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection.

Term Period for which the policy runs. In life insurance, this is to the end of the term period for term insurance.

Underwriter Company receiving premiums and accepting responsibility for fulfilling the policy contract. Also, company employee who decides whether the company should assume a particular risk; or the agent who sells the policy.

Uninsurable Risk A person who is not acceptable for insurance due to excessive risk.

Universal Life Permanent life insurance that is characterized by its flexible premiums, its flexible face amounts and flexible death benefit amounts. Universal life policies are generally interest-sensitive..

Variable Life Life insurance under which the benefits relate to the value of assets behind the contract at the time the benefit is paid. The assets fluctuate according to the investment experience of funds managed by the life insurance company. Premium payments may be fixed as to timing and amount (scheduled premium variable life) or subject to change by the policy holder (flexible premium variable life).

Waiver of Premium A supplementary life insurance policy benefit under which the insurer promises to give up its right to collect renewal premiums that become due while the insured is totally disabled..

Whole Life Insurance Life insurance that provides lifetime insurance coverage at a level premium rate that does not increase as the insured ages..

 

 

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