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Glossary
accelerated death benefit riders Supplementary life insurance policy benefit riders that allow an insured to receive a specified portion of the policy's death benefit before his/her death if certain conditions are met. Also known as living benefit riders.
accidental death and dismemberment (AD&D) rider An accidental death benefit rider that provides additional benefits if an accident causes the insured to lose any two limbs or the sight in both eyes.
accidental death benefit A supplementary life insurance policy benefit under which the insurer pays the beneficiary an amount of money in addition to the basic death benefit if the insured dies as a result of an accident.
accumulated value The net amount paid for a deferred annuity, plus interest earned, less the amount of any withdrawals.
accumulation at interest dividend option The dividend option under which policy dividends are left on deposit with the insurer to accumulate at interest.
accumulation period The period between the contract holders purchase of a deferred annuity and the onset of the annuity's payout period.
accumulation units Ownership shares in a separate investment account during the accumulation period of a variable deferred annuity.
actuaries Insurance company employees who perform all of the calculations needed to ensure that the company's products are mathematically sound.
additional term insurance dividend option The dividend option under which the insurer uses each policy dividend to purchase one-year term insurance on the insured's life. Also known as Fifth Dividend Option.
adjustable life insurance A form of cash value life insurance that allows the policyholder to vary the type of coverage as his/her insurance needs change.
annual statement An accounting report prepared by each insurer every year and filed with the insurance department in each state in which the insurer operates.
annuitant The named individual whose lifetime is used as the measuring life in a life annuity.
annuity - (1) A series of periodic payments. (2) A policy under which an insurance company promises to make a series of periodic payments to a named individual in exchange for a premium or a series of premiums.
annuity beneficiary - The individual the contract holder names to receive any survivor benefits payable during the accumulation period of a deferred annuity.
annuity certain - An annuity that is payable for a stated period of time, regardless of whether an individual lives or dies.
annuity mortality tables - Tables listing the projected mortality rates for persons purchasing annuities.
annuity period - The time span between each of the payments in a series of periodic annuity benefit payments.
annuity units - Ownership shares in a variable annuity's separate investment account during the annuity's payout period.
applicant - The person or business that applies for an insurance policy.
assets - Things of value owned by a company.
assignee - The owner of property who transfers his/her rights in that property to another party by means of an assignment.
attained age - The current age of the insured.
attained age conversion - The conversion of a term life insurance policy to a cash value life insurance policy at a premium rate based on the insured's age at the time the coverage is converted.
automatic dividend option - The dividend option that the insurer will apply if the owner of a participating life insurance policy does not choose an option. The most typical automatic dividend option is the paid-up additional insurance option.
automatic nonforfeiture benefit - A specific nonforfeiture benefit that will become effective automatically if a renewal premium is not paid within the grace period and the insured has not elected another nonforfeiture option. The most typical automatic nonforfeiture benefit is the extended term insurance benefit.
automatic premium loan (APL) provision - A life insurance policy provision that allows the insurer to pay an overdue renewal premium by making a loan against the policy's cash value.
beneficiary - The person or party the owner of an insurance policy names to receive the policy benefit if the event insured against occurs.
benefit period - The time during which periodic income benefits will be paid under a disability income insurance policy.
business continuation insurance plan - An insurance plan that enables the owner(s) of a business to provide for the continued operation of the business if the owner or a key person dies.
cash dividend option - The dividend option under which the insurer sends the policyholder a check in the amount of the policy dividend that was declared.
cash refund annuity - A refund annuity under which the refund is paid in a lump sum.
cash surrender value - The amount that a contract holder will receive if he/she surrenders a deferred annuity policy. This amount is equal to the accumulated value of the annuity less any surrender charges specified in the policy.
cash surrender value nonforfeiture option - A nonforfeiture option under which a policyholder who stops paying premiums for a permanent life insurance policy can elect to surrender the policy for its cash surrender value.
cash value - The amount of money, before adjustments for factors such as policy loans, that the policyholder will receive if a cash value life insurance policy does not remain in force until the insured's death. Also known as cash surrender value.
cash value life insurance - A type of life insurance that provides coverage throughout the insured's lifetime and builds cash value. Premium amounts and payment schedules may be fixed or flexible, according to the contract.
cede - To obtain reinsurance on insurance policies by transferring all or part of the risk to a reinsurer.
ceding company - An insurance company that obtains reinsurance on insurance policies it has issued.
certificate of insurance - A document that describes the coverage provided by a group insurance policy and that is distributed by the group policyholder to each group insured.
claim - A request for payment under the terms of an insurance policy.
commission - The amount of money, usually a percentage of the premiums, that is paid to an insurance agent for selling an insurance policy.
consideration - One party's offer or promise of something that will be of value to the other party. In order to form a valid informal contract, the parties must exchange legally adequate consideration.
contingency reserves - The monetary reserves an insurer maintains to cover unusual conditions that may occur.
contingent beneficiary - The party named to receive the proceeds of a life insurance policy if the primary beneficiary should die before the insured dies. Also known as secondary beneficiary or successor beneficiary.
contingent payee - The person or party who will receive any proceeds of a life insurance policy still payable under a settlement option at the time of the primary payee's death. Also known as successor payee.
continuous premium whole life policy - An insurance policy for which premiums are payable throughout the life of the policy. Also known as a straight life insurance policy.
contract - A legally enforceable agreement between two or more parties.
contract holder - The person who applied for and purchased an individual annuity contract.
contractual capacity - The legal capacity to make a contract.
contributory plan - (1) A group insurance plan under which insured group members must contribute some or all of the premium for their coverage. (2) A retirement plan that requires plan participants to make contributions to fund the plan. See also noncontributory plan.
conversion privilege - (1) A term life insurance policy provision that allows the policyholder to change (convert) the policy to a cash value insurance policy without providing evidence of the insurability of the insured. (2) A group life insurance policy provision that allows a group insured whose coverage terminates for specified reasons to convert his/her group coverage to an individual policy of insurance without presenting evidence of his/her insurability.
convertible term insurance policy - A term life insurance policy that gives the policyholder the right to convert the policy to a cash value insurance policy.
credit life insurance - Term life insurance that pays the balance due on a loan if the borrower dies before the loan is repaid.
cross-purchase method - A method of purchasing a deceased partner's interest in a partnership in which each partner agrees to purchase a proportionate share of a deceased partner's interest.
decreasing term life insurance policy - A term life insurance policy that provides a death benefit that decreases over the term of coverage.
deferred annuity - An annuity under which periodic benefits are scheduled to begin more than one annuity period after the date on which the annuity was purchased.
defined benefit pension plan - A pension plan that defines the amount of the benefit that a participant will receive at retirement. See also defined contribution pension plan.
defined contribution pension plan - A pension plan that describes the annual contribution the employer will deposit into the plan on behalf of each plan participant. See also defined benefit pension plan.
disability income benefit - A supplementary life insurance policy benefit that provides a monthly income benefit to an insured who becomes totally disabled.
disability income coverage - A type of health insurance that provides income replacement benefits to an insured who is unable to work because of sickness or injury.
dividend options - Choices available to the owner of a participating policy concerning how the policyholder's share of the insurer's divisible surplus will be distributed.
divisible surplus - The amount of an insurer's surplus that is available for distribution to owners of participating policies.
double indemnity benefit - An accidental death benefit that is equal to the face amount of the life insurance policy.
dread disease (DD) benefit - An accelerated benefit provided by some individual life insurance policies under which the insurer agrees to pay a portion of the policy's face amount to an insured who suffers from one of a number of specified diseases.
dread disease coverage - A type of specified expense coverage that provides benefits for medical expenses incurred by an insured who has contracted a specified disease.
electronic funds transfer (EFT) method - An automatic premium payment technique whereby the policyholder authorizes his/her bank to withdraw funds from his/her account to pay each renewal premium.
endorsement - A document that is attached to an insurance policy and is a part of the policy.
endorsement method - (1) A method by which the owner of a life insurance or an annuity policy may transfer all ownership rights in the policy to another party by notifying the insurer in writing of the change. (2) A change of beneficiary procedure that requires the name of the new beneficiary to be added to the policy itself in order for the beneficiary change to be effective.
endowment insurance - A type of life insurance that provides a specified benefit amount whether the insured lives to the end of the term of coverage or dies during that term.
estate plan - A plan that addresses how best to preserve an individual's assets after the individual dies.
exclusions - Life insurance policy provisions that describe circumstances under which the insurer will not pay the policy proceeds following the death of the insured.
extended term insurance nonforfeiture option - A nonforfeiture option under which the policy's net cash value is used to purchase term insurance for the full coverage amount provided by the original policy for as long a term as the net cash value can provide.
face amount - The amount payable under a life insurance policy if the insured person dies while the policy is in force. Also known as face value.
family income coverage - Decreasing term life insurance that provides a stated monthly income benefit to the insured's surviving spouse if the insured dies during the term of coverage.
family income policy - A whole life insurance policy that provides family income coverage.
family policy - A whole life insurance policy that provides term insurance coverage on the insured's spouse and children.
fixed-amount option - A settlement option under which the insurer pays the policy proceeds and interest in a series of equal payments for as long as the proceeds last.
fixed benefit annuity - An annuity under which the insurer guarantees to pay at least a specified monthly benefit amount for each dollar applied to purchase the annuity.
fixed period option - A settlement option under which the insurer pays the policy proceeds and interest in a series of equal installments for a specified period of time.
flexible-premium annuity - An annuity for which the contract holder pays periodic premiums that may vary between a set minimum and a set maximum amount.
401(k) plan - In the United States, a special type of thrift and savings plan to which employee contributions are deductible from the employee's taxable income.
403(b) plan - A tax-deferred annuity (TDA) plan which meets the requirements of section 403(b) of the Internal Revenue Code. Only certain non-profit organizations described in Section 501(c)(3) of the Internal Revenue Code and public educational institutions qualify for the use of such plans. The plan allows an employee to contribute pre-tax dollars to a fixed or variable account. Because the employer pays no income tax, each employee benefiting from the plan is able to defer all contributions and interest or investment gains made on his or her behalf. This deferral includes either employer contributions and/or contributions required by the employee.
free examination provision - An insurance policy provision that gives the policyholder a stated period after the policy is delivered in which to examine the policy and to return it to the insurer for a full refund.
funding vehicle - The means for investing retirement plan assets as they are accumulated.
future purchase option benefit - A supplemental benefit that allows an insured to increase the benefit amount payable under a disability income policy in accordance with increases in the insured's earnings.
grace period - A specified length of time within which a renewal premium may be paid without penalty.
grace period provision - A policy provision that allows the policyholder to pay a renewal premium within a stated grace period following the renewal premium due date. Both group and individual life and health insurance policies contain a grace period provision.
graded-premium policy - A whole life insurance policy for which there are three or more levels of annual premium payment amounts, ultimately reaching a level premium amount payable for the remaining life of the policy.
group creditor life insurance - Group term insurance that is issued to a creditor and covers the lives of the creditor's current and future debtors.
group deferred annuity - A retirement plan funding vehicle under which contributions for each plan participant are used to purchase a series of single-premium deferred annuities.
group insurance policy - An insurance policy that is issued to an organization that is purchasing insurance coverage for a specific group of people.
group long-term disability income coverage - Group disability income coverage under which the maximum benefit period exceeds one year.
group policyholder - The employer or other party that enters into a group insurance contract with an insurer.
group short-term disability income coverage - Group disability income coverage under which the maximum benefit period is less than one year.
guaranteed insurability (GI) benefit - A supplementary life insurance policy benefit that gives the policyholder the right to purchase additional insurance of the same type as the "basic policy" without supplying evidence of the insured's insurability.
guaranteed renewable policy - An individual health insurance policy that the insurer is required to renew - as long as premiums are paid - at least until the insured attains the age limit specified in the policy. The insurer may increase the premium rate for any class of guaranteed renewable policies.
immediate annuity - An annuity under which benefit payments are scheduled to begin one annuity period after the annuity is purchased.
immediate participation guarantee (IPG) contract - A retirement plan funding vehicle under which the plan's assets are placed in the insurer's general investment account and are used to purchase an immediate annuity for each retired plan participant or to pay monthly benefits directly to retired participants.
income protection insurance - A type of disability income coverage that specifies that an insured is totally disabled and, thus, eligible to receive disability income benefits if he suffers an income loss caused by the disability.
increasing term life insurance - Term life insurance that provides a death benefit that increases by some specified amount or percentage at stated intervals over the policy term.
indeterminate premium life insurance - A type of nonparticipating whole life insurance that allows premium rate modifications throughout the life of the policy and guarantees that the premium rate will never exceed a stated maximum rate.
individual insurance policy - An insurance policy that is issued to insure the life or health of a named person or persons.
individual long-term disability income coverage - Individual disability income coverage under which the maximum benefit period is at least five years.
individual retirement account (IRA) - A retirement savings account that meets requirements for favorable federal income tax treatment in the United States.
individual short-term disability income coverage - Individual disability income coverage under which the maximum benefit period is from one to five years.
individual stop-loss coverage - A type of stop-loss insurance that provides benefits for each claim that exceeds a stated amount.
initial premium - The first premium that is paid for an insurance policy and that is part of the consideration the policyholder gives for the policy.
installment refund annuity - A refund annuity under which the refund is payable in a series of periodic payments.
insurable interest - The likelihood that a policyholder or beneficiary of an insurance policy will suffer a genuine loss or detriment if the event insured against occurs.
interest - Money that is paid for the use of money.
interest option - A settlement option under which the insurer invests the proceeds of a life insurance policy and pays interest on these proceeds to the payee.
interest-sensitive whole life insurance - A type of indeterminate premium life insurance which provides that the policy's cash value may be greater than that guaranteed if changing assumptions warrant an increase.
joint and survivor annuity - An annuity that provides a series of payments to two or more individuals until both or all of the individuals die.
joint and survivorship life income option - A settlement option under which the policy proceeds are used to purchase a joint and survivor annuity.
joint whole life insurance policy - A whole life insurance policy that insures two lives and that provides for the payment of the proceeds when the first insured dies.
juvenile insurance policy - An insurance policy that is issued on the life of a child but is owned and paid for by an adult.
Keogh plan - In the United States, a qualified individual retirement account that a self-employed individual may establish.
key person - Any person or employee whose continued participation in a business is necessary to the success of the business and whose death would cause the business a significant financial loss.
key person life insurance - Insurance that a business purchases on the life of a key person.
lapse - The termination of an insurance policy because a renewal premium was not paid within the grace period.
last survivor life insurance policy - A joint whole life insurance policy that provides for payment of the proceeds when both insureds have died.
level premium system - A life insurance pricing system that allows the purchaser to pay the same premium amount each year.
level term life insurance policy - A term life insurance policy that provides a death benefit that remains the same over the term of coverage.
life annuity - An annuity that provides periodic benefit payments for at least the lifetime of a named individual.
life income annuity with period certain - An annuity that guarantees that annuity benefits will be paid during the lifetime of the annuitant and that payments will be made for at least a certain period.
life income option - A settlement option under which the insurer pays the policy proceeds and interest in a series of periodic installments over the payee's lifetime.
life income with period certain option - A settlement option under which the policy proceeds are used to purchase a life income annuity with period certain.
life income with refund annuity - An annuity that provides annuity benefits throughout the annuitant's lifetime and guarantees total benefit payments of at least the purchase price of the annuity.
life insurance policy - A policy under which the insurance company promises to pay a benefit upon the death of the person who is insured.
limited-payment whole life policy - An insurance policy for which premiums are payable for some stated period that is less than the insured's lifetime.
maturity date - (1) The date on which an endowment insurance policy's face amount will be paid to the policyholder if the insured is still living. (2) The date on which an insurer begins to pay periodic benefits under an annuity.
modified-premium whole life policy - An insurance policy for which the policyholder pays a lower than normal premium for a specified initial period and then pays a higher premium than he would for a similar whole life policy.
mortgage redemption insurance - Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.
mutual insurance company - An insurance company where policyholders who own participating policies are considered members of the company. Membership rights include being able to vote for the board of directors, sharing in the results of the company through participating dividends and receiving some pro rata share of the remainder of the company if it is ever dissolved.
net cash value - The amount a policyholder who elects to surrender his/her policy will receive after the cash surrender value is adjusted for amounts such as paid-up additions, advance premium payments and policy loans.
net premium - The amount of money an insurer needs in order to provide benefits for a policy.
net premium rates - Life insurance premium rates that are based only on expected mortality rates and investment earnings.
noncontributory plan - (1) A group insurance plan under which insured group members are not required to contribute any part of the premium for their coverage. (2) A retirement plan that does not require plan participants to make contributions to fund the plan.
nonparticipating policy - An insurance policy under which the policyholder does not share in the insurer's surplus.
Option A plan - A universal life policy that provides a level death benefit, which is always equal to the policy's face amount.
Option B plan - A universal life policy that provides a death benefit that increases over the life of the policy and that is equal to the policy's face amount plus the amount of the policy's cash value.
paid-up additional insurance dividend option - The dividend option under which the insurer uses each policy dividend to purchase paid-up additional insurance on the insured's life.
paid-up additions option benefit - A supplementary benefit that allows the owner of a whole life insurance policy to purchase single-premium, paid-up additions to the policy on stated dates in the future.
paid-up policy - An insurance policy that requires no further premium payments.
participating policy - An insurance policy under which the policyholder shares in the insurance company's divisible surplus.
payout option provision - An annuity policy provision that lists and describes each of the payout options available to the contractholder.
payout period - The period during which annuity benefit payments are made.
payroll deduction method - An automatic premium payment technique whereby the policyholder authorizes his/her employer to deduct premium payments directly from his/her paycheck.
pension - A lifetime monthly income benefit paid to an individual who has retired.
pension plan - An agreement under which an employer establishes a plan to provide its employees with a lifetime monthly income benefit that begins at their retirement.
period certain - The stated period over which the insurer will make benefit payments under an annuity certain.
periodic level-premium annuity - An annuity for which the contract holder pays equal premiums at regularly scheduled intervals.
policy - A written document that contains the terms of the contractual agreement between an insurance company and the owner of the policy.
policy benefit - A specified amount of money that an insurance company agrees to pay when a specific loss occurs.
policy dividend - A policyholder's share of an insurer's divisible surplus.
policy loan - A loan that an insurer makes to the owner of a life insurance or annuity policy and that is secured by the policy's cash (accumulated) value.
policy loan provision - A policy provision that grants the owner of a life insurance or annuity policy the right to take a loan for up to the policy's net cash (accumulated) value less one year's interest on the loan.
policy reserves - Liabilities that represent the amount an insurer estimates it needs to pay policy benefits as they come due.
policy rider - An amendment to an insurance policy that either expands or limits the benefits payable under the policy.
policy withdrawal provision - A policy provision that permits the owner of a universal life insurance policy or a deferred annuity policy to withdraw funds from the policy's cash (accumulated) value.
policyowner - The person or business that owns an insurance policy.
preauthorized check (PAC) system - An automatic premium payment technique whereby the policyholder authorizes the insurer to generate a check against the policyholder's bank account to pay each renewal premium.
preferred risks - The risk category that is composed of proposed insureds who present a significantly less-than-average likelihood of loss.
premium - A specified amount of money that the insurer receives in exchange for its promise to provide a policy benefit when a specific loss occurs.
premium reduction dividend option - The dividend option under which the insurer applies policy dividends toward the payment of renewal premiums.
principal - (1) A sum of money that is invested over a period of time. (2) An individual or organization that authorizes an agent to act on its behalf.
reduced paid-up insurance nonforfeiture option - A nonforfeiture option under which the policy's net cash value is used as a net single premium to purchase paid-up life insurance of the same plan as the original policy.
refund life income option - A settlement option under which the policy proceeds are used to purchase a life income with refund annuity.
reinsurance - A type of insurance that one insurance company, known as the ceding company, purchases from another insurance company, the reinsurer, in order to transfer risks on insurance policies that the ceding company issued.
reinsurer - An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction.
renewable term insurance policy - A term life insurance policy that allows the policyholder to renew the policy at the end of the policy.
renewal premiums - Premiums that are payable after the initial premium and that are a condition for continuation of the policy and are not consideration for the policy.
renewal provision - (1) A term life insurance policy provision that allows the policyholder to renew the insurance coverage at the end of the specified term without submitting evidence of insurability. (2) An individual health insurance policy provision that describes the circumstances under which the insurer has the right to refuse to renew or to cancel the coverage and describes the insurer's right to increase the policy's premium rate.
separate account - In the United States, an investment account maintained separately from an insurer's general investment account to help manage the funds placed in variable life insurance policies and variable annuity policies.
separate account contract - A retirement plan funding vehicle under which the insurer invests the plan's assets in specialized investments chosen by the plan sponsor.
single-premium annuity - An annuity that is purchased by the payment of a single, lump-sum premium.
single-premium whole life policy - A type of limited-payment whole life policy that requires only one premium payment.
standard risks - The risk category that is composed of proposed insureds who have a likelihood of loss that is not significantly greater than average.
straight life annuity - An annuity that provides periodic payments for only as long as the annuitant lives.
straight life income option - A settlement option under which the policy proceeds are used to purchase a straight life annuity.
substandard risks - The risk category that is composed of proposed insureds who have a significantly greater-than-average likelihood of loss.
temporary life annuity - An annuity that provides periodic benefit payments until the end of a specified number of years or until the annuitant's death, whichever comes first.
term life insurance - A type of life insurance that provides a death benefit if the insured dies during a specified period.
universal life insurance - A form of life insurance that is characterized by its flexible premiums, face amounts and unbundled pricing factors.
variable annuity - An annuity under which the policy's accumulated value and the amount of monthly annuity benefit payments fluctuate with the performance of the underlying separate investment accounts.
variable life insurance - A form of life insurance under which the death benefit and the cash value of the policy fluctuate based on the investment performance of the underlying separate investment accounts.
variable universal life insurance - A type of universal life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance.
whole life insurance - Life insurance that provides lifetime insurance coverage at a level premium rate that does not increase as the insured ages.
yearly renewable term (YRT) insurance - Term life insurance that gives the policyholder the right to renew the coverage each year, over a specified period of time.
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