Life
Insurance Glossary of Terms
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
Accidental Death Benefit
An extra death benefit amount that is paid out
in addition to the face amount of the policy if the insured dies as
the result of an accident. It cost extra to get this benefit, and usually
cannot exceed $250,000 to $300,000, and cannot exceed more than the
face amount of the policy.
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Accelerated Death Benefit Option
In the event of terminal illness, usually l year
or less, the insured has the option to withdraw some of the death benefit
for his personal use. Usually no more than 25% and usually not exceeding
$250,000. This option is usually free and is offered by some insurance
companies.
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Age
Most insurance companies calculate age by using
the age you are nearest to. Example: Insured is 45 and it is January,
and the insured's birthday is in March. If the insurance company was
calculating age nearest, the insured would be considered age 46 for
the purpose of calculating rates.
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Assignment
The
transfer of the ownership rights of a Life Insurance policy from one
person to another.
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Aviation Hazard
The extra hazard of death or injury resulting
from participation in aeronautics. It usually does not include fare-paying
passengers in licensed aircraft. This generally will require paying
extra premium or the waiving of certain benefits of coverage.
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B
Backdating
A procedure for making the effective date
of a policy earlier than the application date. Backdating is often used
to make the age 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.
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Beneficiary
The person designated to receive the death benefit
when the insured dies.
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Business Insurance
Policies written for business purposes, such
as key employee, buy-sell, business loan protection, etc.
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Buy-Sell Agreement
An agreement among owners in a business which
states the under certain conditions, i.e., disability or death, the
person leaving the business or in case of death, his heirs are legally
obligated to sell their interest to the remaining owners, and the remaining
owners are legally obligated to buy at a price fixed in the Buy-Sell
agreement. The funding vehicles are either disability or life insurance
or both.
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C
Children's Term Insurance Rider
Provides term insurance to the insured's
dependents. It is a flat premium for all his dependents and the benefit
usually is not less than $1,000 or more than $10,000.
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Collateral Assignment
Assign all or part of a life insurance policy
as security for a loan. If the insured dies the creditor would receive
only the amount due on the loan.
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Conditional Binding Receipt
This is the more exact terminology for what is
often called a binding receipt. It provides that if premium 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. This coverage usually has a limit until the policy is delivered
and all delivery requirements are met. A life and health insurance policy
without a conditional binding receipt is not effective until it is delivered
to the insured and the premium is paid.
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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. Example: Suicide.
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Contingent Beneficiary
A person or persons named to receive policy benefits
if the primary beneficiary is deceased at the time the benefits become
payable.
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Convertible (conversion)
A policy that may be changed to another form
by contractual provision and without evidence of insurability. Most
term policies are convertible into permanent insurance.
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Credit Insurance
Insurance on a debtor in favor of a creditor
to pay off the balance due on a loan in the event of the death of the
debtor.
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Cross Purchase
A form of business life insurance in which each
party purchases life insurance on each other.
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D
Decreasing Term
A form of life insurance that provides a death
benefit which declines throughout the term of the contract, reaching
zero at the end of the term. Almost never sold any more because level
term insurance is so much less expensive.
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Delivery
The actual placing of a life insurance policy
in the hands of an insured.
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Double Indemnity
Payment of twice the basic benefit in the event
of loss resulting from specified causes or under specified circumstances.
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E
Entity Agreement
A buy-sell agreement in which the company agrees
to purchase the interest of a deceased or disabled partner.
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Evidence of Insurability
The statement of information needed for the underwriting
of an insurance policy.
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Examination
The medical examination of an applicant
for Life Insurance. Examiner: A physician, nurse, or para-med appointed
by the medical director of a life insurance company to examine applicants.
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Expiry
The termination of a term life insurance policy
at the end of its period of coverage. Face: The first page of a life
insurance policy.
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F
Face Amount
The amount of insurance provided by the terms
of an insurance contract, usually found on the face of the policy. In
a life insurance policy, the death benefit.
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Fixed Benefit
A benefit, the dollar amount of which does not
vary. Free Look: A period of time(usually 10, 20, or 30 days) during
which a policyholder may examine a newly issued individual life insurance
policy, and surrender it in exchange for a full refund of premium if
not satisfied for any reason.
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I
Incontestable Clause
A clause in a policy providing that a policy
has been in effect for a given length of time (two or three years),
the insurer shall not be able to contest the statements contained in
the application. In life policies, if an insured lied as to the condition
of his health at the time the policy was taken out, that lie could not
be used to contest payment under the policy if death occurred after
the time limit stated in the incontestable clause.
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Insurability
Acceptability to the insurer of an application
for insurance.
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Insurable Interest
You have an insurable interest in the insured
if upon the death of the insured you would suffer financial loss.
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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.
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Insurance Policy
The printed form which serves as the contract
between an insurer and an insured.
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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.
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Insurer
The company that pays out the death benefits
if the insured dies. Irrevocable Beneficiary: A beneficiary that cannot
be changed without his or her consent.
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K
Key Person (Key Man) Insurance
Insurance on the life of a key employee whose
death would cause the employer financial loss. The policy is owned and
payable to the employer.
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L
Lapsed Policy
A Insurance policy which has been allowed to
expire because of nonpayment of premiums. In a cash value life insurance
policy such as Whole Life or Universal Life the policy could expire
because the cash value account reached a zero balance and no premium
payments are being made to replenish it.
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Level Term Insurance
A type of term policy where the face value remains
the same from the effective date until the expiration date. In the context
of the policies presented by Instant Quote, it would also mean a period
of time the premiums would remain level. For example, the 5, 10, 15,
20, and lifetime term. However, after the level premium period most
policies turn into Annual Renewable Term where the premiums increase
annually.
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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.
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Life Insurance
An agreement that guarantees the payment of a
stated amount of monetary benefits upon the death of the insured.
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M
Medical Information Bureau (MIB)
A data service that stores coded information
on the health histories of persons who have applied for insurance from
subscribing companies in the past. Most Life insurers subscribe to this
bureau to get more complete underwriting information.
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Mortality Charge
The charge for the element of pure insurance
protection in a life insurance policy.
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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.
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Mortality Rate
The number of deaths in a group of people, usually
expressed as deaths per thousand.
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Mortality Table
A table showing the incidence of death at specified
ages.
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Mortgage Insurance
A life policy covering a mortgagor from which
the benefits are intended to pay off the balance due on a mortgage upon
the death of the insured. The best way to accomplish this is through
level term life insurance.
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N
Nonmedical (Non-Med)
A contract of life insurance underwritten on
the basis of an insured's statement of his health with no medical examination
required.
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Not Taken
Policies applied for and issued but rejected
by the proposed owner and not paid for.
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O
Occupational Hazard
A condition in an occupation that increases the
peril of accident, sickness, or death. It usually will mean higher premiums.
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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.
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P
Permanent Life Insurance
A term loosely applied to Life Insurance policy
forms other than Group and Term, usually Cash Value Life Insurance,
such as Whole Life Insurance or Universal Life.
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Policy Fee
There are two calculations to determine the premium
for term insurance. The Policy Fee which is a flat fee added to each
policy and the rate per thousand times the number of thousands of death
benefit. The policy fee is usually the same for all ages and amounts.
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Preauthorized Check Plan
A premium-paying arrangement by which the policy
owner authorizes the insurer to draft money from his or her bank account
for the payments. This is usually done on a monthly basis.
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Preferred Risk
Any risk considered to be better than the standard
risk on which the premium rate was calculated. Some companies are now
offering degrees of preferred to reduce their rates even more. An extremely
healthy person can now get extraordinary low rates.
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Premium
The price of insurance protection for a specified
risk for a specified period of time.
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Primary Beneficiary
The beneficiary named as first in line to receive
proceeds or benefits from a policy when they become due.
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Provisions
Statements contained in an insurance policy which
explain the benefits, conditions and other features of the insurance
contract.
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R
Rated
Coverage issued at a higher rate than standard
because of some health condition, or impairment of the insured.
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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.
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Replacement
A new policy written to take the place of one
currently in force.
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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.
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S
Standard Risk
A risk that is on a par with those on which the
rate has been based in the areas of health, physical condition, and
morals. An average risk, not subject to rate loading or restrictions
because of health. At one time the best class of risk was the standard
class. As the insurers improved their underwriting skills, they were
able to define those in very good health and offer them better rates
with the new preferred class. Now some insurers have even developed
different levels of preferred.
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Stock Purchase Agreement
A formal buy-sell agreement whereby each stockholder
is bound by the agreement to purchase the shares of a deceased stockholder
and the heirs are obligated to sell. This agreement is usually funded
with life insurance.
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Stock Redemption Agreement
A formal buy-sell agreement whereby the corporation
is bound by the agreement to purchase the shares of a deceased stockholder
and the heirs are obliged to sell. This agreement is usually funded
with life insurance.
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T
Term Insurance
The type of life insurance that provides protection
for a specified period of time. It usually has no real cash build up.
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U
Underwriter
A technician trained in evaluating risks and
determining rates and coverage for them. When an application is submitted
to the insurer, it is the underwriter who gathers all the necessary
information to determine whether a person is a preferred risk, a standard
risk, or rated.
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Underwriting
It is what the underwriter does to determine
the class of risk an applicant will be placed in
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Universal Life
An interest sensitive life insurance policy that
builds cash values. The premium payer has control on how the policy
is structured. He has the flexibility to vanish the premiums (pay no
more premiums based on assumptions that are not guaranteed) or have
the premiums continue for life. It is a matter of juggling 3 variables.
The assumed interest rate, the cash value and the premium payment plan.
The policy is interest sensitive , and if interest rates change from
the assumed interest, it will effect the other two variables. In the
past, many Universal Life Policies were structured assuming a higher
interest rate then was actually received, therefore, most of them have
under performed. If you have a Universal Life Policy, you should have
it evaluated to see if it needs to have the premiums adjusted to get
it back on track. A fourth variable that has not been a factor but could
be in the future, and the owner should be aware of, is the Mortality
variable. Universal Life policies are usually structured assuming current
mortality rates. The insurance companies reserve the right to change
those rates. To my knowledge this has never been done
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W
Waiver of Premium
A provision of a life insurance policy which
continues the coverage without further premium payments if the insured
becomes totally disabled.
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Whole Life Insurance
Life insurance that is kept in force for a person's
whole life as long as the scheduled premiums are maintained. All Whole
Life policies build up cash values. Most Whole Life policies are guaranteed
as long as the scheduled premiums are maintained. The variable in a
whole life policy is the dividend which could vary depending on how
well the insurance is doing. If the company is doing well and the policies
are not experiencing a higher mortality than projected, premiums are
paid back to the policyholder in the form of dividends. Policyholders
can use the cash from dividends in many ways. The three main uses are:
It can be used to lower or vanish premiums, it can be used to purchase
more insurance or it can be used to pay for term insurance.
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Life insurance
Glossary
