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of Life Insurance Terminology
This glossary of terms is designed to make it
easier to understand your policy and policy options.
Absolute Assignment: The irrevocable
transfer of ownership of a life insurance policy from one
person to another.
Accelerated Benefits: Allows
for the policyholder to receive their benefits before death,
usually in cases of terminal illness or need for long-term
Accelerated Endowment: A dividend
option allowing dividend accumulations to be applied to convert
a life insurance policy into an endowment, or to shorten the
Accelerative Endowment: An
option to use policy dividends to mature a policy as an endowment
before the regular maturity date.
Accidental Death and Dismemberment Insurance:
Insurance policy that provides payment if the insured's death
is the result of an accident, or if the insured accidentally
severs a limb above the wrist or ankle joints, or totally
and irreversibly loses his or her eyesight.
Accumulation Value: Describes
the total of all premiums paid and interest credited to the
Universal life account before deductions for any expenses,
loans or surrenders.
Accumulations (or Accumulation Benefits):
Percentage additions to policy benefits when the contract
is continuously renewed.
AD&D: See Accidental Death
and Dismemberment Insurance
Adjustable Life Insurance:
A form of life insurance which allows changes on a policy's
face amount, the amount of premium, period of protection,
and the length of the premium payment period. Also known as
Flexible Premium Adjustable Life Insurance Policy.
Adjustable Premium: The right
of an insurer to change the premium rate at the time of policy
Age: Your current age, which
is a determining factor for premium rates.
Age Change: The date on which
a person's age changes, for insurance purposes. For life insurance,
this is the date midway between the insured's natural birth
dates. Health insurers frequently use the age of the previous
birth date for rate determinations. On the date of age change,
a person's age may change to that of the last birth date,
the nearer birth date, or the next birth date, depending on
the structure used by the insurer.
Amount At Risk: The difference
between the Face Value of a Whole Life Insurance contract
and the cash value which it has built up. It is the amount
the insurer would have to draw from its own funds rather than
the policy reserve were the contract to become a death claim.
Annual Payment Annuity: An
annuity purchased by the payment of annual premiums for a
specified period of time.
Assignment: The transfer of
ownership of a life insurance policy from one person to another.
Also refers to the document that effects the transfer.
Association Group Insurance:
Group insurance issued to an association rather than to an
employer or a union.
Attained Age: The age an insured
has reached on a given date.
Automatic Premium Loan: A provision
authorizing the insurer to use the loan value to pay any premiums
still due at the end of the grace period.
Autopsy: The post-mortem medical
examination to determine cause of death.
Aviation Accident Insurance: Protects
individuals as passengers or pilots, usually on scheduled
aircraft, or covers the flight travel of the employees of
a company under a master policy.
Aviation Hazard: The extra
hazard of death or injury resulting from participation in
aeronautics, usually as other than a fare-paying passenger
in licensed aircraft. This generally requires an extra premium
rating or waiver of certain benefits or coverage.
Backdating: A procedure for
making the effective date of a policy earlier than the application
Bad Faith: A breach of contract,
on the part of either the insured or the insurer.
Beneficiary: The named person
who receives the benefits of the policy upon the death of
Blackout Period: The period
during which a surviving spouse no longer receives survivors
benefits and before he or she is eligible for retirement benefits.
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Cash Refund Annuity: An annuity
contract which provides that if, when the holder dies, installments
paid to him have not totaled the amount of the premium paid
for the annuity, the difference will be paid to a designated
beneficiary in a lump sum.
Cash Value (Also Surrender Value):
The amount available in cash for loans and/or withdrawals.
Accessing Cash Value may reduce the death benefit and may
increase the risk of lapse.
Cash Value Account: The forced
savings account built up in whole life insurance policies
and variations thereof. These savings are culled from premium
payments, and can be borrowed against in times of emergency.
Child Life Insurance: A type
of life insurance purchased to insure the life of a child.
Read more about Child Life Insurance.
Cleanup Fund: Commonly used
term for policies whose express purpose is to pay the deceased's
Collateral Assignment: The
temporary transfer of some benefits of a life insurance policy
from one person to another, usually used as collateral for
a loan. In the event of default, the creditor would receive
proceeds only to the extent of his interest.
Combination Plan: Combining
life Insurance contracts with a side fund or auxiliary fund
for the purpose of increasing the amount of money available
for a pension or annuity at some future date.
Common Accident: An accident
in which two or more persons are injured.
Common Disaster: When the insured
and the beneficiary appear to die simultaneously with no clear
evidence of who died first.
Common Disaster Clause: The
clause in a life insurance policy that provides for how the
insurer will distribute the proceeds of the policy in the
event of a common disaster.
Commutation Rights: The right
of a beneficiary to receive a lump sum of unpaid payments
in an installment plan settlement.
Conditional Binding Receipt:
Provides that if a premium payment accompanies an application,
the coverage will be in force from the date of application
or medical examination, if any, whichever is later, provided
the insurer would have issued the coverage on the basis of
the facts revealed on the application, medical examination
and other usual sources of underwriting information. A policy
without a conditional binding receipt is not effective until
it is delivered to the insured and the premium is paid.
Contestable Clause: A provision
setting forth the conditions where the insurer may contest
or void the policy. After that time has lapsed, normally two
years, the policy cannot be contested.
Contingent Beneficiary: A person
named beneficiary in the event the primary beneficiary dies
before the policyholder.
Contract: The policy itself,
in which all coverage information and provisions and exclusions
are laid out. Only valid upon signature.
Control Provision: A policy
provision, usually for children's policies, providing that
ownership control is to be exercised by a person other than
Convertible: A policy that
may be changed to another form without evidence of insurability.
Most Term policies are convertible into permanent insurance.
Convertible Term Insurance:
Term insurance that the policy owner can exchange for a permanent
insurance policy without evidence of insurability.
Conversion Privilege: The right
of an individual to convert a Group
Life policy to an individual policy should the individual
stop being a member of the group.
Cost-of-Living Rider: Adjusts
policy benefits in relation to the change in the economic
climate. Most such riders are tied to changes in the Consumer
Price Index (CPI). The amount of insurance may be automatically
increased, without evidence of insurability, at predetermined
periods up to a maximum.
Credit Life Insurance: A group
life insurance contract whereby a creditor is protected in
the event of death of the insured prior to the indebtedness
being paid in full.
Death Benefit: The amount of
money paid or due to be paid when a person insured under a
life insurance policy dies.
Decreasing Term: A type of
insurance in which the premium decreases over the period of
the term, as does the coverage; usually used as a form of
Delivery: The actual placing
of a life Insurance policy in the hands of an insured.
Dependent Coverage: Insurance
coverage on the head of a family which is extended to his
or her dependents, including only the lawful spouse and unmarried
children (age restrictions apply) who are not yet employed
on a full-time basis.
Dependent Life Insurance: A
benefit which is part of a group life insurance contract that
provides death protection to the eligible dependents of a
Dividend: A return of part
of the insurance premium that is based on the insurer's investment,
mortality and expense experience. Dividends are not guaranteed.
Dividend Accumulation: An option
which allows the policyholder to leave any premium dividends
with the insurer to accumulate at compound interest.
Dividend Additions: An option
whereby the insured can leave dividends with the insurer,
and each dividend is used to buy a single premium life insurance
policy for whatever amount it will purchase.
Double Indemnity: Payment of
twice the basic benefit in the event of loss resulting from
specified causes or under specified circumstances such as
accidental death. See also Multiple Indemnity.
Due Date: The date on which
premium payment is due.
Endowment Insurance: A form
of Life Insurance where the face amount is payable to the
insured at the end of the contract period or to a beneficiary
if the insured dies before that. An example would be an insured
purchasing an endowment payable at age 65: If he reaches that
age, the proceeds would be payable to him. If he dies prior
to that age, the proceeds would be payable to the designated
beneficiary as a Life Insurance benefit.
Excess Interest: Interest credited
to an insured's contract in excess of the amount guaranteed
by the terms of the contract.
Exclusion: A condition in an
insurance policy that denies payment in the case of certain
Expiry: The termination of
a Term Life Insurance policy at
the end of its period of coverage.
Extended Death Benefit: A group
policy provision which will pay the life benefit when (a)
the insured is totally and continuously disabled at the time
the policyholder stops paying premium until the insured's
death, and (b) if the insured dies within one year of the
date the premium payments stopped, or prior to age 65.
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Face Value: The amount stated
on the face of the policy that will be paid upon the death
of the policyholder. The Face Value does not include additional
amounts payable under accidental death or other special provisions,
or acquired through the application of policy dividends.
A provision found in some life policies that lets the insurer
pay a portion of the proceeds of the policy to any relative
or person who has possession of the policy and appears entitled
to it. It is designed to facilitate payment when some doubt
may exist as to who the beneficiary is and to save legal expenses
in the settling of an estate.
Family Income Policy: A policy
that pays an income until a specific date to the beneficiary
after the death of the insured at which time the beneficiary
is paid the face value of the policy. The period of payment
is measured from the date of the contract. If the insured
lives beyond the income period, only the face amount is payable
upon his death.
Family Maintenance Policy:
A policy that pays an income to the beneficiary starting after
the death of the insured and continuing for a stated period
of time. At the end of the income period, the face amount
of the policy is paid to the beneficiary.
Family Policy: A contract
that provides insurance within a single policy for a father,
mother, and born and unborn children. The father's coverage
is typically Whole Life Insurance,
with the mother and children insured for smaller amounts of
Financed Premium: The payment
of insurance premiums with funds borrowed from elsewhere.
A settlement option under which fixed, periodic benefits payments
are made until the principal and interest are exhausted.
Fixed Benefit: A benefit where
the dollar amount does not vary.
A settlement option under which the proceeds are guaranteed
to be paid in equal installments for a specified period of
time. See also Installments Certain.
Flexible Premium Adjustable Life Insurance
Policy: Also called Universal
Life type policies.
Flexible Premium Policy: A
policy where the policyholder may vary the amount or timing
of premium payments.
Free Look: A provision in which
policyholders have up to twenty days to examine their policies
at no obligation.
Grace Period: The amount of
time that the policyholder has to pay a late premium, usually
30-31 days, during which time the insurance is in force.
Graded Death Benefits: When
death benefits early in the contract are less than the face
amount of the policy but increase over time. It is most commonly
found in policies for infants.
Graded Premium: When the initial
premium is low and increases in steps over a period of time
(usually five years), after which it becomes a level premium.
Group Life Insurance: A type
of insurance in which a group is covered--if you are part
of the group, then you have insurance. Easily affordable and
sometimes offered as part of an employee benefits package.
Read more about Group Life Insurance.
Guaranteed Insurability: An
option in insurance contracts that allows the insured to buy
additional prescribed amounts of insurance at prescribed future
time intervals without evidence of insurability.
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Income Policy: A life policy
where proceeds are paid on a monthly basis, in contrast with
a lump sum.
Incontestability: In which
the insurance company cannot contest any terms and benefits
of a policy due to misstatement or misrepresentation. Usually
in effect after a period of two years.
Increasing premium: A type
of life insurance in which the premiums increase over time,
usually as the amount of coverage changes, and usually an
Installment Settlement: Payment
of the proceeds of a policy or its cash value in installments
rather than in a lump sum.
Installments Certain: A settlement
option under which the proceeds are guaranteed to be paid
in equal installments for a specified period of time. See
also Fixed-Period Installments.
of an applicant for insurance.
Insured (or Insured Life):
The person on whose life the policy is issued; usually the
same person who owns the policy.
Insurer: The insurance company.
Insuring clause: The portion
of a policy which describes the degree of risk the insurer
is willing to assume.
Intentionality: In which the
death of an insured person results from intentional behavior;
subsequently the insurance company does not have to pay the
benefits of an accidental death policy.
Irrevocable beneficiary: A
type of beneficiary that cannot be changed without their consent.
Jumping Juvenile: A popular
name for a life insurance policy for a child where the face
value increases automatically at a certain age (usually 21),
without additional cost or a medical examination.
Juvenile Insurance: A life
insurance policy for a child.
Lapse: When the policyholder
fails to make the premium payments and the policy becomes
null and void.
Level Death Benefit Option:
For Universal Life policies,
provides the greater of (1) the face amount of the policy,
or (2) a stipulated percentage of the accumulation value.
Level Premium: A type of term
insurance in which the premiums remain the same throughout
the term of the policy. The premium is usually more than the
actual cost of protection early in the policy, and less later
in the policy. This reserve built up in the early years couples
with earned interest to make up for the underpayment later
in the policy.
Level Term Insurance: A type
of term policy where the face value remains the same from
the effective date until the expiration date. See also Term
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 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.
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Life Paid Up At Age: Limited
Payment Life insurance where premium payments stop at a particular
age, but coverage continues. A common form would be Life Paid
Up At Age 65.
Limited Payment Life: A type
of life insurance that provides protection for the whole of
life with premiums paid for a set number of years. See also
Life Paid Up At Age, Paid-up Insurance.
Limited Policies: Policies
paid only upon the occurrence of certain contingencies, such
as cancer, in contrast to policies covering all contingencies
other than those excluded.
Loan (or Policy Loan): A loan
taken from the cash value account of a whole life policy (or
one of its various forms). Generally, loans may reduce the
policy's death benefit and cash value.
Lump Sum: A settlement option
where the beneficiary receives the entire proceeds of a policy
at once rather than in installments.
Maturity Date: The date on
which the face amount of a policy becomes payable.
Maturity Value: The amount
payable to a living insured at the end of an endowment period
or to the owner of a Whole Life
policy if he lives past a certain age.
Medical Examination: In which
the applicant must undergo a physical exam and give a blood
and urine sample in order to determine their health before
purchasing a policy.
Minimum Deposit Policy: A Cash
Value policy that can be borrowed against immediately upon
payment of the first-year premium. This is not the case with
most Life Insurance policies due to high first-year expenses.
Misrepresentation: In which
the policyholder/applicant does not reveal any or all of their
current and former health conditions.
Misstatement of Age or Sex:
In which the policyholder has intentionally or unintentionally
given or recorded the wrong age or sex on the application
for their policy.
Modification: In which no person
save for those named in the policy can make any modifications
to the policy.
Monthly Administration Fee:
With Universal Life insurance,
an administrative fee is charged each month to cover administrative
Mortality Table: A table that
gives the average number of deaths per age group for both
men and women. A determining factor when figuring up a premium
Mortgage Insurance: A type
of life insurance that provides for the coverage of the policyholder's
mortgage and any interest and taxes. Read more about Mortgage
Multiple Protection Insurance: A
combination of Term and Whole
Life Insurance that pays some multiple of the face during
the period of the Term policy, becoming a regular Whole Life
policy after the Term policy expires. The multiple protection
period is thus the period during which both the Term and the
Whole Life coverages are in effect.
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Nonforfeiture Values: The values
in a policy that, by law, the policy owner cannot forfeit
even if he ceases to pay the premiums. These benefits are
the cash surrender value, the loan value, the paid-up insurance
value, and the extended term insurance value. The policy owner
may choose one of these nonforfeiture options, but even if
he fails to do so, the one specified in the contract for such
a case automatically goes into effect.
Occupational Hazard: A condition
in an occupation that increases the risk of accident, sickness,
Paid-up Insurance: Insurance
that will remain in force with no need to pay additional premiums.
Participating Policy: A life
insurance policy that is eligible for the payment of dividends
by the insurer (see also Dividend.)
Parties: The specific groups
named in the policy, namely the insurer and the insured, plus
Permanent Life Insurance: Any
form of life insurance except term; generally insurance that
builds up a cash value, such as whole life. Read more about
Whole Life Insurance.
A loan taken from the cash value account of a whole life policy
(or one of its various forms).
Policy Owner: The person who
owns a life insurance policy. This is usually the insured
person or policyholder, but it may also be a relative of the
insured, a partnership or a corporation.
Premium: The amount of money
paid by the insured in order to maintain their policy.
Primary Beneficiary: The first
person named in the policy as beneficiary.
Principal Sum: The amount payable
in one sum in the event of accidental death or certain accidental
Proceeds: The amount of money
that the insurance company is obligated to pay for the settlement
of a life insurance policy.
Provision: A condition in an
insurance policy referring to a specific event or item.
Policy Change Provision: A
provision in an insurance policy that allows the policyholder
to change their coverage as needed.
Policy Date: The date the policy
goes into effect.
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Quantity Discount: A premium
discount given for the purchase of a policy with a larger
Reduced Paid-Up Insurance:
A form of insurance available as a nonforfeiture option. Provides
that the cash value of the policy be used as a single premium
to purchase paid-up insurance in whatever amount the cash
value will provide.
Reinstatement: In which a lapsed
policy can be restored with evidence of insurability and paying
past-due premiums required.
Renewable Term Insurance: Term
insurance that can be renewed at the end of the term without
evidence of insurability, for a limited number of successive
terms. The rates generally increase at each renewal as the
age of the insured increases.
Renewal: In which the policyholder
renews an insurance policy. Can occur annually or upon expiration
of the current policy. May have to prove eligibility, and
premiums may be higher.
Retroactive Conversion: The
conversion of a Term Life Insurance policy to a Cash Value
form, effective from the original issue of the Term policy.
Return of Premium Rider: Provides
that, in the event of the death of the insured within a specified
period of time, the policy will give back all premiums paid,
in addition to the face amount of the policy.
Revocable beneficiary: A type
of beneficiary that can be changed as needed; most common
Rider: An addition to the original
policy that covers a separate condition, such as dismemberment
or disability, or provides additional coverage.
Secondary Beneficiary: The
second person named to receive benefits upon the death of
an insured if the primary beneficiary has already died.
Self-Funded Plan: Plan of insurance
where an employer, which has fairly predictable claim costs,
pays the claims rather than an insurance company.
Single Premium Policy: A Life
Insurance policy paid for in one single premium rather than
in annual premiums over a period of time.
Split Dollar Plan: A method
of purchasing life insurance whereby an employer and employee
jointly purchase the policy, pay premiums and share in the
Suicide Cause: In which the
policy owner causes his or her own death; usually not payable
if occurring within two years.
Surrender: To give up a Whole
Life policy. The insurer pays the insured the cash value which
the policy has built up if it is surrendered.
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Term life: A form of insurance
that is pure insurance and has no cash value, which lasts
for a specific pre-determined length of time, called a term.
Underwriter: A person who assesses
the eligibility and risk factor of insurance applicants.
Uniform simultaneous death act:
A law that states that if the policyholder and the primary
beneficiary die under conditions in which it is impossible
to determine which died first, it is assumed that the insured
will have survived the beneficiary unless there is a provision
in the policy to the contrary.
Universal Life: A flexible
life insurance policy under which the policyholder may change
the death benefit from time to time (with satisfactory evidence
of insurability for increases) and vary the amount or timing
of premium payments. Also has a cash value account which acts
as a sort of savings account that builds interest and can
be borrowed against. Read more about Universal
Unscheduled Premium Payments:
With Universal Life insurance, the policyowner can pay extra
premiums in addition to the scheduled premium payment amount.
Variable Life: A form of whole
life insurance under which the death benefit and the cash
value of the policy fluctuate according to investment performance.
Most variable life insurance policies guarantee that the death
benefit will not fall below a specified minimum, but a minimum
cash value (in the cash value account) is seldom guaranteed.
These policies are similar to stocks and money market accounts.
Read more about Variable Life
Waiver of Premium: This provision
allows the insured to stop paying premiums when he or she
has been disabled. In most cases, the insured must be disabled
for at least six months before the waiver can take effect.
War Clause: A provision excluding
liability of an insurer if a loss is caused by war.
Whole Life Insurance: A basic
type of permanent life insurance that, as long as the premiums
are paid, can cover the policyholder over the course of their
entire life. Premiums usually remain level with this type
of policy. Read more about Whole
Yearly Renewable Term (YRT) / Annual
Renewable Term: Term Life Insurance that may be renewed
annually without evidence of insurability until some stated
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