A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

ABSOLUTE ASSIGNMENT

An irrevocable transfer of complete ownership of a life insurance policy or an annuity from one party to another.

ACCELERATED DEATH BENEFITS

A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured's death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.

ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) BENEFIT

A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy's basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs or the sight in both eyes as the result of an accident.

ACCIDENTAL DEATH BENEFIT (ADB)

A supplementary life insurance policy benefit that provides a death benefit in addition to the policy's basic death benefit if the insured's death occurs as the result of an accident.

ACTUAL CASH VALUE

A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation

ACTUARY

An insurance professional skilled in the analysis, evaluation and management of statistical information. Evaluates insurance firms' reserves, determines rates and rating methods, and determines other business and financial risks.

ADJUSTABLE LIFE INSURANCE

A form of life insurance that allows policy owners to vary the type of coverage provided by their policies as their insurance needs change.

ADVERSE SELECTION

The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.

ANNUITANT

The person who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.

ANNUITIZATION

The conversion of the account balance of a deferred annuity contract to income payments.

ANNUITY

A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant's lifetime. There are two basic types of annuities: deferred and immediate. Deferred annuities allow assets to grow tax-deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.

B

Beneficiary

The person or persons named in the life insurance policy that receive the life insurance proceeds at the time of the insureds death.

BROKER

An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.

C

CASH DIVIDEND OPTION

For participating insurance policies, a dividend option under which the insurer sends the policy owner a check in the amount of the policy dividend.

CASH PAYMENT OPTION

One of several nonforfeiture options included in life insurance policies and some annuity contracts that allows a policy owner to receive the cash surrender value of a life insurance policy or an annuity contract in a single payment.

Cash Surrender Value:

The dollar amount that is available in the form of cash for loans and that may be available for withdrawals. Accessing the Cash Surrender Value may reduce the death benefits paid by the insurance company and may increase the risk of the policy terminating.

CHARTERED FINANCIAL CONSULTANT / ChFC

A professional designation given by The American College to financial services professionals who complete courses in financial planning.

cHARTERED LIFE UNDERWRITER / CLU

A professional designation by The American College for those who pass business examinations on insurance, investments and taxation, and have life insurance planning experience.

CONTESTABLE PERIOD

The time during which an insurer has the right to cancel or rescind an insurance policy if the application contained a material misrepresentation.

CONTINGENT BENEFICIARY

The party designated to receive the proceeds of a life insurance policy following the insured's death if the primary beneficiary predeceased the insured. Also known as secondary beneficiary and successor beneficiary.

Convertible Term Life Insurance

Term insurance which can be converted, as the option of a policy owner and without new evidence of insurability, for a permanent type life insurance policy.

D

DEATH BENEFIT

(1) For a life insurance contract, the amount of money paid by an insurer to a beneficiary when a person insured under the life insurance policy dies. (2) For an annuity contract, the amount of money paid to a beneficiary if the contract owner dies before the annuity payments begin.

DECREASING TERM LIFE INSURANCE

Term life insurance that provides a death benefit that decreases in amount over the policy term. Contrast with increasing term life insurance.

Dividend

A return of part of the premium on participating insurance that is based on the insurer's investment, mortality, and expense experience. Dividends are not guaranteed.

E

EARNED PREMIUM

The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.

ENDORSEMENT

A written form attached to an insurance policy that alters the policy's coverage, terms, or conditions. Sometimes called a rider.

ENDOWMENT INSURANCE

Life insurance that provides a policy benefit payable either when the insured dies or on a stated date if the insured is still alive on that date.

EXCLUSION

A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

EXTENDED TERM INSURANCE OPTION

One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with a cash value to discontinue premium payments and to use the policy's net cash value to purchase term insurance for the full coverage amount provided under the original policy for as long a term as the net cash value can provide.

F

Face Amount:

The face amount is the dollar amount that will be actually be paid in case of the insureds death. It does not include additional dollar amounts payable under riders such as accidental death or other special policy provisions.

FAMILY BENEFIT COVERAGE

A type of supplementary benefit rider offered in conjunction with a life insurance policy that insures the lives of the insured's spouse and children. Also known as dependent life insurance and spouse and children's insurance rider.

FLEXIBLE PREMIUM

A premium payment method sometimes offered in connection with annuities and with some types of life insurance that allows the contract owner or policy owner to alter the amount and the frequency of payments, within specified boundaries defined by the insurer and the law.

FREE-LOOK PERIOD

A period of up to one month during which the purchaser of an annuity can cancel the contract with no penalty. Rules vary by state.

G

GRACE PERIOD

(1) For insurance premium payments, a specified length of time following a premium due date within which the renewal premium may be paid without penalty. The length of the grace period is specified in a grace period provision that is found in a life insurance, health insurance, or annuity policy. (2) For purchases made on credit, a period of time between the date of a purchase and the date the lender begins to charge interest during which no interest accrues.

GUARANTEED DEATH BENEFIT

Basic death benefits guaranteed under variable annuity contracts.

GUARANTEED INSURABILITY (GI) BENEFIT

A supplementary life insurance policy benefit often provided through a policy rider that gives the policy owner the right to purchase additional insurance of the same type as the life insurance policy that provides the GI benefit on specified option dates. Also known as guaranteed insurability option (GIO).

I

INCONTESTABILITY PROVISION

An insurance and annuity policy provision that limits the time within which an insurer has the right to avoid the contract on the ground of material misrepresentation in the application for the policy. Also known as incontestable clause.

INCREASING TERM LIFE INSURANCE

A type of term life insurance that provides a death benefit that increases by some specified amount or percentage at stated intervals over the policy term. Contrast with decreasing term life insurance.

INDETERMINATE PREMIUM LIFE INSURANCE POLICY

A type of nonparticipating whole life policy that specifies two premium rates, both a maximum guaranteed rate and a lower rate. The insurer charges the lower premium rate when the policy is purchased and guarantees that rate for at least a stated period of time, after which the insurer uses its actual mortality, interest, and expense experience to establish a new premium rate that may be higher or lower than the previous premium rate. Also known as nonguaranteed premium life insurance policy and variable premium life insurance policy.

INDEXED LIFE INSURANCE CONTRACT

An arrangement similar to a universal life contract. Death benefit amounts are based on the amount selected by the policyholder plus the account value. The policyholder's account value is linked to cumulative returns based on the S&P 500 index or some other tied index. An essential component of the contract is that the cash surrender value is also linked to a tied index. Typically, the tied index doesn't include dividends. There may be additional constraints on the amount that the insurance company will credit as interest under this policy.

INSURABLE INTEREST

In insurance, a person exhibits an insurable interest in a potential loss if that person will suffer a genuine economic loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful purpose and, thus, is not a valid contract.

Insurability

Insurability is the acceptability of the applicant to the company for which a application for insurance has been submitted.

Insured:

The person whose life is insured through the insurance policy.

IRREVOCABLE BENEFICIARY

A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured's lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary's consent. Contrast with revocable beneficiary.

l

LAPSE

The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

evel Premium Life

Life insurance for which the premium remains the same from year to year with no changes in premium cost.

LEVEL PREMIUM POLICIES

Premiums paid for a life insurance policy or for a deferred annuity that remain the same each year that the contract is in force. Contrast with modified premium policies and single premium policies.

m

MATURITY DATE

(1) For endowment in insurance, the date on which an insurer will pay the face amount of an endowment policy to the policy owner if the insured is still living. (2) In investing, the date on which a bond issuer must repay to the bondholder the amount originally borrowed. (3) For an annuity, the date on which the insurer begins to make annuity payments. Also known as income date.

Medical Information Bureau

A nonprofit organization established to provide information to insurers about impairments that applicants have admitted to, or that other insurers have detected, in connection with previous applications for insurance. Formerly known as Medical Information Bureau.

MISREPRESENTATION

A false or misleading statement. (1) In insurance sales, a false or misleading statement made by a sales agent to induce a customer to purchase insurance is a prohibited sales practice. (2) In insurance underwriting, a false or misleading statement by an insurance applicant may provide a basis for the insurer to avoid the policy.

MISSTATEMENT OF AGE OR SEX PROVISION

A life insurance, health insurance, and annuity policy provision that describes how policy benefits will be adjusted if the age or sex of the insured has been misstated in the insurance application. Typically, the benefits payable will be those that the premiums paid would have purchased for the correct age or sex.

MODIFIED PREMIUM POLICIES

An insurance policy for which the policy owner first pays a lower premium than she would for a similar level premium policy for a specified initial period and then pays a higher premium than she would for a similar level premium policy. Contrast with level premium policies and single premium policies.

N

NONCANCELLABLE AND GUARANTEED RENEWABLE POLICY

An individual health insurance policy, which stipulates that, until the insured reaches a specified age (usually age 65), the insurer will not cancel the coverage, increase the premiums, or change the policy provisions as long as the premiums are paid when due. Also known as noncancellable policy. Contrast with guaranteed renewable policy. /p>

O

An individual health insurance policy, which stipulates that, until the insured reaches a specified age (usually age 65), the insurer will not cancel the coverage, increase the premiums, or change the policy provisions as long as the premiums are paid when due. Also known as noncancellable policy. Contrast with guaranteed renewable policy.

A life insurance policy that remains in force for the policyholder's lifetime.

OVER-THE-COUNTER (OTC)

Security that is not listed or traded on an exchange such as the New York Stock Exchange. Business in over-the-counter securities is conducted through dealers using electronic networks.

p

Paid-up Insurance

Life Insurance that will remain in force with no more requirement to pay any more additional premiums.

PAID-UP ADDITIONAL INSURANCE OPTION

An option, available to the owners of participating life insurance policies, that allows the policy owner to use policy dividends to purchase additional insurance on the insured's life; the paid-up additional insurance is issued on the same plan as the basic policy and in whatever face amount the dividend can provide at the insured's attained age

PER CAPITA BENEFICIARY DESIGNATION

A type of life insurance policy beneficiary designation in which the life insurance benefits are divided equally among the designated beneficiaries who survive the insured. For example, if the policy specifies two beneficiaries, but only one is surviving at the time of the insured's death, then the remaining beneficiary receives the entire policy benefit. Contrast with per stirpes beneficiary designation.

Permanent Life Insurance

Any form of life insurance except term insurance. Such as Universal Life and Whole Life policies.

POLICY DIVIDEND OPTIONS

Ways in which the owner of a participating insurance policy may receive policy dividends.

Policy Loan

A loan made by a life insurance company from its general funds account to the owner of the policy on the security of the cash value of a permanant life insurance policy.

Policyowner:

The person who owns the life insurance policy. This is usually the insured, but it may also be a relative or a business partner.

PRE-EXISTING CONDITION

(1) According to most group health insurance policies, a condition for which an individual received medical care during the three months immediately prior to the effective date of her coverage. (2) According to most individual health insurance policies, an injury that occurred or a sickness that first appeared or manifested itself within a specified period—usually two years—before the policy was issued and that was not disclosed on the application for insurance.

Premiums

Money paid to the insurance company to purchase a policy and to keep it in continous force.

PRIMARY BENEFICIARY

The party designated to receive the proceeds of a life insurance policy following the death of the insured. Also known as first beneficiary.

R

RATE

The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

RATED POLICY

An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.

REDUCED PAID-UP INSURANCE OPTION

One of several nonforfeiture options included in life insurance policies that allows the owner of a policy with cash values to discontinue premium payments and to use the policy's net cash value to purchase paid-up insurance of the same plan as the original policy.

Renewable Term Insurance

Term insurance which can be renewed at the end of the term period without any evidence of insurability.

REVOCABLE BENEFICIARY

A life insurance policy beneficiary whose right to the policy's proceeds can be cancelled or reduced by the policy owner at any time before the insured's death. Contrast with irrevocable beneficiary.

RIDER

An attachment to an insurance policy that alters the policy's coverage or terms.

t

TERM LIFE INSURANCE

A form of life insurance that covers the insured person for a certain period of time, the term that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.

U

UNDERWRITING

Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premiums for them.

UNINSURABLE RISK

Risks for which it is difficult for someone to get insurance.

UNIVERSAL LIFE INSURANCE

A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest. Death benefits can be changed during the life of the policy within limits, generally subject to a medical examination. Once funds accumulate in the cash value account, the premium can be paid at any time but the policy will lapse if there isn't enough money to cover annual mortality charges and administrative costs.

W

WAITING PERIOD

For a health insurance policy, the period of time that must pass from the date of policy issue before benefits are payable to an insured. Also known as elimination period and probationary period.

WAIVER

The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.

WAIVER OF PREMIUM FOR DISABILITY (WP) BENEFIT

A supplementary life insurance policy or annuity contract benefit under which the insurer promises to give up its right to collect premiums that become due while the insured is disabled according to the policy or rider's definition of disability.

Whole Life

A permanent form of life insurance which can provide lifetime protection for the insured at a level premium expense.

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