Accelerated Death Benefit: An optional rider in life insurance policies, which allows a specific percentage of the policy’s death benefit to be paid to the policy owner prior to the insured’s death. The benefit is eligible in the event a doctor certifies that the insured is terminally ill or if the insured’s life expectancy is 12 months or less. Accelerated Death Benefits can be used to pay medical expenses, debts, or other items as the policyowner sees fit. Note that some life insurance policies will automatically include the Accelerated Death Benefit feature. Every policy will differ slightly in its language so ask you agent for details.
Accumulation Value: The account value or cash accumulation value of an universal life insurance policy, variable life insurance policy, whole life policy, or annuity. The accumulation value is a function of premiums received, withdrawals made, expenses charged, cost of insurance deducted, and interest credited.
Age at Issue: The insured’s age at the time the policy takes effect. Life insurance policies define issue age as either the age at the insured’s last birthday or nearest birthday. Using one method or the other could impact the cost of coverage.
Allocation Split (Split of Premium Allocation): The percentages of each premium payment to be invested in the various indexing or investment options that are available in the policy. The policyowner may at times change the indexing method or investment options in which future premiums will be applied. Your allocation for each option must be a whole percentage and sum of all allocations must equal 100%. Allocation splits generally only apply to Indexed Universal Life, Variable Universal Life, and Annuities (not traditional Universal Life or Term Life).
Annual Statement: A document provided by the insurance company to the policy owner every year detailing a policy’s performance. Figures reported may include: account values, premiums paid, etc. It is important to review your Annual Statement when it is received.
Application: A written paper or electronic provided by an insurance company that is completed by the insurer’s agent, the insured, and in many cases also by the medical examiner. The completed application provides information about the health, occupation, lifestyle, and family history of the proposed insured. The policy application is signed by the policyowner, insured, and insurance agent. The completed and signed application is used by the insurance company to decide if a policy should be issued and at what price/cost.
Assignment: The act of transferring all or part of one’s rights and benefits in a life insurance policy or annuity contract from the policy owner “Assignor” to a third party an “Assigne”.
Attained Age: The age of the insured the insurance company uses to calculate the required premiums for a policy. Automatic Increase Rider An optional policy feature or rider in a universal life contract that provides periodic increases in face amount based on a predefined percentage, starting in a predefine policy year. This option must be applied for at the time of issue for the policy. There are typically additional costs for purchasing this option.
Automatic Premium Loan Provision: If invoked, this is feature allows the insurance company to automatically borrow money from a policy’s cash value to pay any premium which has not been paid at the end of a grace period. This can prevent a policy from lapsing by accident. This feature is generally available in whole life policies (not Term Life or Universal Life).
Automatic Premium Payment: An option which allows the insurance company to automatically withdraw money from a life insurance policy’s cash accumulation value to pay a due premium. The option is general only available on certain Whole Life plan
Bank Draft: A premium payment method by which a policy owner allows his/her bank to withdraw a designated premium amount from his/her specified account on a periodic basis and transfer the money to the insurance company to be applied as payment for the policy premium. Also known as an Electronic Funds Transfer (EFT).
Beneficiary: The designated individuals or entities who receive the death benefits paid by a life insurance policy or annuity contract.
Beneficiary (Contingent): The designated individuals or entities who receive the death benefits paid by a life insurance policy or annuity contract, in the event the primary beneficiary(ies) is/are no longer living at the time the insured or annuitant dies.
Beneficiary (Primary): The beneficiary(ies) specially designated by the owner as the first in line to receive life insurance policy or annuity contract proceeds.
Broker: An individual or company who acts as an intermediary between the insurance buyer and the insurance company. Brokers by nature, generally represent many different insurance companies and sell many insurance products. A broker’s typical role is to research the market in order to find the best possible options for the insured.
Broker-Dealer: A business entity licensed and registered with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (“FINRA”), www.finra.org. A broker-dealer has the legal authority to sell securities products to the general public. An agent or representative selling variable life, variable annuities, mutual funds, stock, bonds, and other securities must be registered with a broker-dealer. A Broker-Dealer’s role is to supervise its registered representatives to ensure product suitability and sales best practices.
Buy-Sell Agreement: A buy-sell agreement, typically drafted by an attorney, assures a market/purchaser of your business should you die, become disabled, or leave the business. It does this by providing a method of determining the value of the business, identifying the future buyer(s), and creating a legal obligation between you and the buyer(s). Often life insurance is used to fund a buy-sell agreement in the event of death.
Cash Surrender Value: The amount available to a policyowner when a life insurance or annuity policy is surrendered or terminated for a reason other than the insured’s death. This feature is available to owners of Universal Life, Variable Universal Life, Whole Life, and Deferred Annuities (not Term Life).
Children’s Term Rider (or Children’s Insurance Benefit): An optional policy feature or rider that provides term insurance coverage on children of the primary insured. There is always an additional cost associated with adding this feature.
Collateral Assignment: When a policyowner of a life insurance policy or an annuity contract transfers certain rights to a third party as security or collateral for a debt, this is usually a temporary measure. Under a collateral assignment, the third party creditor is entitled to payment limited to the amount that the policyowner owes the third part creditor. Any death benefit or cash surrender amount in excess of the debt owed by the policyowner to the third part creditor is paid to the policyowner or the policy’s beneficiaries. A collateral assignment may also result in restrictions or limitations of the ability to take policy loans.
Common Disaster Clause: A clause or language sometimes included in a life insurance policy that dictates the manner in which the insurance company is to distribute death benefit proceeds of the life insurance policy in the event of a “Common Disaster”.
Contestable Clause (or Incontestable Clause): A provision in almost every life insurance policy that states the time (called the contestable period) during which the policy may be contested, challenged or voided by the insurance carrier based on material misrepresentations contained in the original application or medical examination. By law, the maximum contestable period is two years.
Conversion / Convertible Term: A policy may contain a provision providing that under certain circumstances the policy may be exchanged for another life insurance policy with the same insurance company, without further evidence of health or underwriting requirements. Most often, term insurance can be converted to Universal Life, Whole Life, or another form of permanent life insurance dictated by the insurance company.
Cost of Insurance (COI): Universal Life and Variable Life insurance policies have a “cost of insurance” amount that is deducted monthly from the cash accumulation value of the policy to pay for the pure insurance protection provided by the policy. The amount deducted is calculated based on a number of factors such as age, health class at the time of policy issue, and death benefit amount.
Critical Illness Rider: An additional form of insurance coverage that can be added as a Rider to certain types insurance policy which has a specified benefit to the policyowner if the insured is diagnosed with a critical illness or condition.
Date of Issue: The date on which a policy or contract is issued by the insurance carrier. Note, this may be different from the policy “Effective Date”.
Death Benefit: The amount paid to the beneficiary(ies) upon the death of the insured. Also referred to as “Face Amount”.
Death Benefit Option: The method by which the death benefit payable is calculated for a Universal Life or Variable Universal Life insurance policy. For Level Death Benefits (aka Option A), the death benefit is the face amount of the policy reduced by the existing loan, if applicable. For Increasing Death Benefits (aka Option B), the death benefit amount is the face amount plus the cash value amount, reduced by the existing loan, if applicable.
Death Claim: The formal process by which an insurance company is notified of the insured’s death and the request for payment of policy proceeds in accordance with the terms and conditions of the life insurance policy.
Disability Waiver of Premium: A feature or rider in a life insurance policy which waives the required premiums should the insured become disabled (as defined by the policy).
Dividend: A payout only available to Whole Life policyowners, whereby the insurance company distributes its account surplus to the owners of participating life insurance policies. The dividend amount is derived from actual mortality, interest and expenses that were more favorable than expected when premiums were originally set.
Electronic Funds Transfer: A premium payment method by which a policy owner allows the insurance company to withdraw designated premiums directly from his/her bank account at a specified amount on a periodic basis and to transfer the money to the insurance company to be applied as payment for the policy premium. Also known as a Bank Draft.
Endow: The point at which a life insurance policy’s cash value becomes equal to the face amount.
Evidence of Insurability: Proof of a person’s physical health condition, life style, occupation, or other factors, utilized by an insurance company to determine the acceptability of an applicant’s risk profile.
Excess Interest: The difference between the rate of interest an insurance company is currently paying on a life insurance policy’s or annuity’s cash value account and the guaranteed amount to be paid (this amount is always greater than or equal to 0).
Face Amount: The amount paid (aka Death Benefit or Coverage Amount) to the beneficiary(ies) upon the death of the insured. The base face amount does not include additional benefits which may be paid by Accidental Death Benefit riders, or other riders purchased with the policy, if applicable.
Free-Look Provision: Most state Departments of Insurance require a provision in a life, annuity, long-term care, or disability policy that gives the policyowner or contract owner a specified amount of time to review a new policy or contract after issuance and receipt. This is a consumer friendly feature allowing the policy or contract to be returned to the insurance company and voided within the specified time limit for a refund of all premiums paid. A common specified Free Look Period is 60 days.
Grace Period: A period of time stated in an insurance policy in which the policy will stay inforce in the event the required premium payment has not been made and there is not sufficient policy cash values. A common length of a Grace Period is 30 days.
Guaranteed Insurability Option: A rider to a life insurance policy that guarantees the right to purchase additional life insurance or long-term care coverage at set option dates without evidence of insurability.
Guaranteed Interest: Every life insurance policy or annuity contract has a minimum guaranteed interest rate. The current interest rate paid by the insurance carrier may be greater than or equal to the guaranteed interest rate, but never lower. Interest paid over and above the guaranteed interest rate is referred to as the excess interest.
Impaired Risk: Refers to an individual which the insurance company has assessed to be a substandard or impaired risk. Factors such as health history, life style, and family history can result in an individual being classified as an “Impaired Risk”. Being an impaired risk will result in higher premium requirements.
Independent Agent: An authorized representative of an insurance company who solicits and services insurance contracts. An Independent Agent is not an employee of the insurance company and typically represents many carriers.
Index Account: Indexing is method to measure the performance of a group of securities. Some life insurance and annuity policies allow for the cash accumulations growth to be tied to a selected index. Examples are: Dow Jones Industrial Average, S&P 500, NASDAQ-100.
Insurable Interest: An insurable interest exists when there is a risk of potential loss in the event the insured dies. Individuals or entities can establish an insurable interest providing evidence that the insured’s death would result in a financial loss or burden. Spouses, children, business partners, and creditors are the most common parties to have an insurable interest in the life of the insured. An insurance company will not issue a new life insurance policy if the beneficiaries do not have an insurable interest.
Interest Rate (Current): This is the current interest rate credited to the life insurance policy or annuity contract by the insurance carrier.
Interest Rate (Guaranteed): The stated minimum guaranteed annual interest rate to be credit by the insurance company to a life insurance policy of annuity contract.
Irrevocable Beneficiary: A beneficiary designation that cannot be changed without prior written consent of the beneficiary(ies).
Key-Man Policy: A life insurance policy that pays a specified death benefit to a business for financial losses incurred due to a key employee’s death. These proceeds are often used to supplement the loss of sales, loss of technical expertise, and the cost incurred to hire a replacement.
Lapse: The termination or cancellation of an insurance policy due to nonpayment of required premiums. Or, in the case of Variable Life and Universal Life insurance policies, the depletion of cash values below the amount needed to keep the policy in force. Under certain conditions, a policy might stay inforce under a “settlement option”.
Lien: A third party creditor’s claim against property such as a life insurance policy or annuity. For example, a mortgage is a lien against a house; if the mortgage is not paid, the house can be repossessed to satisfy the lien. As soon as the debt is repaid, the lien must be removed. A lien is granted by the courts.
Life Expectancy: The average number of years a person is expected to live. Life expectancy will vary based on age, sex, health, and family history.
Life Settlement: A Life Settlement allows a policy owner to sell an existing life insurance policy to a third part investor. The investor pays the policy owner in cash. Policy ownership and beneficiary designation is transferred to the third part investor. To be eligible for a life settlement an insured typically must be 70 years old or older.
Loan (Outstanding): The current value of a life insurance policy loans outstanding, including both principal and accrued interest.
Loan Interest Rate: The current interest rate which is charged for a loan taken from the life insurance policy’s cash value.
Loan Provision: A policy feature that gives the policy owner of a life insurance policy the ability to take a loan from the policy’s available cash surrender value (not applicable for term insurance).
Maturity Date: The maturity date is the end of the contract term of a life insurance or annuity policy. This may be dictated by a specified period or time or by age.
Maximum Loan Amount: A new policy loan amount will be capped by the amount available in the policy’s cash surrender value.
Medical Information Bureau (MIB): An independent entity that collects and stores medical data on life, health and other insurance applicants. The information is exchanged among participating insurance companies, this information may only be accessed with written authorization from the insured. Its function is to safeguard against fraud and concealment by allowing insurance companies to discover relevant, undisclosed, health facts.
Monthly Anniversary: The same day as the policy date for each succeeding month (i.e. the 15th of every month).
National Association of Insurance Commissioners (NAIC): A membership organization of the appropriate state insurance commissioners. Its goals are to promote the uniformity of state regulation and legislation related to insurance and to ensure insurance sales best practices.
Net Amount at Risk: The difference between the stated face amount of a life insurance policy and the policy’s cash accumulation or cash value.
Net Cash Surrender Value: The cash accumulation value less any surrender charges and/or outstanding loans in a life insurance policy or annuity contract.
Nonforfeiture Values: The benefits or values in a life insurance policy that the policy owner does give up, if he/she chooses to discontinue payment of premiums. Such benefits usually include cash surrender values, reduced paid-up insurance and extended term insurance values.
Other Insured Rider: An optional policy feature that provides convertible term insurance coverage to a spouse or an immediate family member of the primary insured. This feature usually carries additional costs.
Owner (Policy Owner): The stated individual or entity who owns a life, annuity, long-term care, or disability insurance policy. The owner could be the insured on the policy, the beneficiary, or another third party. Normally, the policy owner pays the premiums on the policy and is the only one who is allowed to make changes to a policy, such as: a change of beneficiary, withdraw cash values, or taking loans on the policy.
Paid-Up Additions: Dividends from whole life policies can be used to purchase additional life insurance, which increases the policy’s overall death benefit and cash value without increasing the premiums.
Participating Policy: A Whole Life policy is a “participating” insurance policy. This means you will be eligible to receive dividends paid by the insurance company. Dividends provide the potential to enhance a policy’s value, at no extra cost to you.
Payor: The individual or entity who is making premium payments on a policy or contract. If the payor is not the owner, the payor may not be entitled to the rights and provisions of the policy or contract.
Per Stirpes: Literally mean “by branches” in Latin. Per Stirpes is a beneficiary designation calling for the distribution of benefits or property between or among two or more beneficiaries, with the provision that if one beneficiary dies before the insured, the dead beneficiary’s heirs shall be entitled to the beneficiary’s full share distributed equally amongst them.
Planned Periodic Premium or Payment: The premium billing frequency and amount of premium to be paid at specific intervals until the policy’s maturity date.
Policy / Contract: The written agreement between the insurance company and the policy owner or contract owner. The contract will state coverage amount, premium amount, length of coverage, beneficiaries, and additional information pertinent to your contract.
Policy Anniversary: The annual anniversary of the policy issue date.
Policy Date: The date on which coverage or a contract becomes effective. This is shown on the policy or contract specification page
Policy Number / Contract Number: A unique alpha numeric code assigned to the policy by the insurance company for identification and tracking purposes.
Policy Owner / Contract Owner: The stated individual or entity who owns the insurance policy. The owner could be the insured on the policy, the beneficiary, or another third party. Normally, the policy owner pays the premiums on the policy and is the only one who is allowed to make changes to a policy, such as: a change of beneficiary, withdraw of cash values, or taking loans on the policy.
Policy Status: The current status of the policy (Paid, Inforce, In Grace (premiums are late), Lapsed/Cancelled).
Premium: Payments made to the insurance company to purchase a an insurance policy and to keep the policy in force/active.
Premium Mode: The frequency with which premium payments are made. This is determined by the policy owner. The Premium Mode options are Annual, Semi-Annual, Quarterly, Monthly or Single Pay.
Primary Beneficiary(ies): The beneficiary(ies) specially designated by the owner as the first in line to receive life insurance policy or annuity contract proceeds.
Primary Insured Rider: An optional policy rider that provides level term insurance in addition to the base policy amount. When the primary insured rider is combined with the base coverage of a universal life policy, it can lower the premium expenses for the total amount of coverage as compared to the cost of a pure universal life policy.
Rated: A rated policy is issued with a higher premium because the insurance company has assessed the insured to be a substandard or impaired risk.
Reinstatement Provision: A policy feature which allows a policyowner to reinstate a lapsed policy within a specified time after lapse. There are usually conditions which must be met to qualify for reinstatement which may include: evidence of insurability and or payment of back due premiums. This right is typically forfeited if a policy has been surrendered for its cash surrender value.
Return of Premium Term (ROP): Term Life ROP is similar to traditional Term Life Insurance. It is different in one key way, with a Return of Premium (ROP) policy you can get 100% of your premiums returned to you, tax-free, should you outlive the stated term of your policy. ROP policies pay a death benefit only if the insured dies during the term period and if premium payments have been paid current. Typical term coverage periods are: 10, 15, 20, 25, & 30 years.
Riders (Life Insurance): A written agreement attached to a life insurance policy or annuity contract that enhances the policy’s or contract’s terms or coverage. Riders may increase the premium you pay to the insurance company. Examples of riders include: 1. Accelerated death benefit 2. Accidental death benefit 3. Automatic increase rider 4. Children’s term rider 5. Guaranteed insurability option 6. Other insured rider 7. Primary insured rider 8. Waiver of monthly deduction 9. Waiver of Specified Premium
Suicide Provision: A life insurance policy provision stating that if the insured commits suicide within a specified period, usually one or two years after date of policy issue, the company is not obligated to pay the stated death benefit amount. However, the insurance company is required to return the premiums paid
Surrender Charge: Is a fee or penalty applied by the insurance company in the event a life insurance or annuity policy owner surrenders or cancels a policy prior to the end of the surrender charge period.
Term Lief Insurance: A type of life insurance that covers the insured’s life for a specified period of time (term). Term policies pay a death benefit only if the insured dies during the term period and if premium payments have been paid current. Typical term coverage periods are: 5, 10, 15, 20, 25, & 30 years. Term insurance does not have cash values.
Underwriting Class / Rating: The classification of an insured’s risk profile as determined by the insurance carrier when a policy is issued. A favorable underwriting will result in lower premiums. Factors effecting underwriting class include: health, lifestyle, and family history.
Universal Life: A flexible-premium and adjustable death benefit life insurance policy. Policy performance is determined by current interest rates, and current costs of insurance. Universal life has the added features and benefits of flexible premiums, adjustable coverage amount, accumulating cash value, and the ability to take loans.
Variable Universal Life Insurance: A flexible-premium and adjustable death benefit life insurance policy. Policy performance is determined by investment fund performance, and current costs of insurance. Variable Universal Life has the added features and benefits of accumulating cash value and the ability to take loans. The cash surrender value is not guaranteed, because it will fluctuate with the market value of the selected investment options. This type of policy carries additional risk for the owner due to poor investment fund performance.
Waiver of Monthly Deduction: An optional feature for a life insurance policy which waives the monthly cost of insurance charges on a universal life or variable life policy for the duration of a qualified disability as specified in the policy.
Waiver of Specified Premium: An optional feature for a life insurance policy which waives a specified premium on the policy for the duration of a qualified disability as dictated in the policy.
Whole Life Insurance: A type of life insurance which is designed to remain inforce for the life of the insured. Whole life requires that level premiums are made every year but it has the benefit of accumulating cash values and provides the possibility for dividend payments.