Life Insurance Glossary
See Irrevocable Beneficiary.
Accidental Death Benefit
An extra benefit which generally equals the face of the contract or principal sum, payable in addition to other benefits in the event of death as the result of an accident. See also Double Indemnity and Multiple Indemnity.
A term used in Universal Life policies to describe the total of all premiums paid and interest credited to the account before deductions for any expenses, loans or surrenders.
Accumulations (or Accumulation Benefits)
Percentage additions to policy benefits when the contract is continuously renewed.
A form of life insurance which allows changes on the policy face amount, the amount of premium, period of protection, and the length of the premium payment period. See also Flexible Premium Adjustable Life Insurance Policy.
The right of an insurer to change the premium rate on classes of insured customers, or blocks of business at the time of policy renewal.
A party who is authorized by another party, the principal, to act on the principal's behalf in contractual dealings with third parties.
Career agents who place business with companies other than their primary companies. Also known as agents of other companies, surplus brokers, or simply brokers.
The party applying for an insurance policy.
A form that must be completed by an individual or other party who is seeking insurance coverage. This form provides the insurance company with much of the information it will need to decide whether to accept or reject the risk.
Amount at Risk
The difference between the face amount of a Whole Life Insurance contract and the cash value which it has built up. The net amount at risk declines throughout the life of the contract, while the policy reserve increases along with the cash value. 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 which was purchased by the payment of annual premiums for a specified period of time.
The transfer of the ownership rights of a Life Insurance policy from one person to another. The term also refers to the document that effects the transfer.
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 a lower premium. State laws often limit to six months the time to which policies can be backdated.
A person who may become eligible to receive or is receiving benefits under an insurance policy other than a participant. See also Irrevocable Beneficiary, Revocable Beneficiary, Primary Beneficiary, Secondary Beneficiary, Tertiary Beneficiary, and Contingent Beneficiary.
This is customary to most policies and allows you to name the recipient of your death benefit. Generally the recipient is either an individual or your estate. It is a wise decision to make an individual the beneficiary to insure prompt payment of the death benefit.
The face amount of Life insurance written.
Cash Surrender Value
The amount of cash due an insured who surrenders Cash Value Life Insurance. Such surrender, with consequent termination of all insurance benefits, is sometimes called "cashing out" or "cashing in" a policy. See also Nonforfeiture Values.
See Cash Surrender Value.
Life or Health Insurance on risks which do not meet the standards for the regular manual rate. See also Substandard.
A commonly used term to designate policies whose express purpose is to pay final expenses of death.
Assignment of a Life Insurance policy or its value as security for a loan. In the event of default, the creditor would receive proceeds or values only to the extent of his interest.
A life and health insurance company that sells both industrial and ordinary insurance products.
In pensions this is a term applied to the combining of Life Insurance contracts with a fund called a side fund or auxiliary fund. The purpose is to increase the amount of money available for a pension or annuity at some future date.
An accident in which two or more persons are injured.
A situation in which the insured and the beneficiary appear to die simultaneously with no clear evidence of who died first.
Common Disaster Clause
A clause sometimes added to a Life Insurance policy that provides a means for the insurer to distribute the proceeds of the policy in the event of a common disaster.
Conditional Binding Receipt
This is the more exact terminology for what is often called a binding receipt. It provides that if a 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. 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.
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.
A person(s) named to receive policy benefits if the primary beneficiary is deceased at the time the benefits become payable.
A general term used to describe a plan of employee coverage in which the employee pays at least part of the premium.
This is the right of an individual to convert a Group Health or Life policy to an individual policy should the individual cease to be a member of the group. Usually this can be done without a physical examination.
Coordination of Benefits (COB)
A group policy provision which helps determine the primary carrier in situations where an insured is covered by more than one policy. This provision prevents an insured from receiving claims overpayments.
In Universal Life insurance, it is necessary to maintain a certain level of pure insurance protection in excess of the accumulation value in order to qualify as life insurance for income tax purposes. This portion of the pure insurance protection is called a "corridor."
Cost of Insurance
The amount a policy owner pays to an insurer, minus what he or she gets back from the insurer. This expression is used when determining the true cost of permanent forms of Life Insurance to a policy owner. It considers the fact that premiums are paid in but also that an actual cash value is being built up, which is the portion that the insured will get back from the insurance.
Crude Death (or Mortality) Rate
The ratio of total deaths to total population during any given period. See also Mortality Rate.
The amount stated in a policy contract as payable upon the death of the person whose life is being insured. See also Principal Sum.
See Mortality Rate.
(1) The amount of premium charged or debited to an agent to be collected. (2) The book of business represented by such premiums. (3) The territory where most of the insureds are located. (4) The total number of individual or home service insureds assigned to a given agent for collection of weekly or monthly premiums and for servicing, commonly referred to as "people in my debit."
An agent who works on the debit system.
Debit Life Insurance
See Industrial Life Insurance.
The system of collecting insurance premiums weekly or monthly by an agent.
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.
One of the options in a Life Insurance policy which allows the policyholder to leave any premium dividends with the insurer to accumulate at compound interest.
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. Also called Paid-Up Additions.
Payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances. For example, a Life Insurance contract may provide for twice the basic benefit if death is due to accident. Accident policies may provide double indemnity coverage for death due to an elevator accident. See also Multiple Indemnity.
A form of Life Insurance combining Whole Life and an equivalent amount of Term, with the Term expiring at a stated future date, usually at 65 years of age. For example, an individual may purchase $50,000 worth of Life Insurance protection, $25,000 of it being Term Insurance and the other $25,000 Whole Life. The provision would state that the $25,000 of Term Insurance ceases when the insured reaches age 65.
One of the uses of Life Insurance. It is designed to provide money for a child's education should the breadwinner of the family die.
One of the uses of Life Insurance which provides money for the emergency expenses of a deceased's family prior to the final settlement of the estate.
Employee Benefit Program
Benefits offered an employee at his place of work by his employer, covering such contingencies as medical expenses, disability, retirement, and death, usually paid for wholly or in part by the employer. These benefits are usually insured.
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.
Expectation of Life
The average number of years of life remaining for persons of a given age according to a particular mortality table. Also called life expectancy.
The termination of a Term Life Insurance policy at the end of its period of coverage.
The first page of a Life Insurance policy.
Family Income Policy
A policy that pays an income up to some future date designated in the policy to the beneficiary after the death of the insured. The period of payment is measured from the date of the inception of the contract, and at the end of the income period the face amount of the policy is paid to the beneficiary. If the insured lives beyond the income period, only the face amount is payable in the event of 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.
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 Term Insurance.
The payment of insurance premiums with funds borrowed outside the contract itself.
Flexible Premium Adjustable Life Insurance Policy
This is another term used to describe Universal Life type policies.
Flexible Premium Policy
A life insurance policy under which the policyholder may vary the amount or timing of premium payments.
Flexible Premium Variable Life
A whole life contract and a security which features flexible premium payments, nonguaranteed cash values and either a minimum guaranteed death benefit or no guaranteed death benefit. Policy values are dependent on the performance of a separate account.
A period of time (usually 10, 20 or 30 days) during which a policyholder may examine a newly issued individual policy of life or health insurance, and surrender it in exchange for a full refund of premium if not satisfied for any reason.
The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time.
An option in Life and Health Insurance contracts that permits the insured to buy additional prescribed amounts of insurance at prescribed future time intervals without evidence of insurability.
Life or Health Insurance for which premiums are being paid or for which premiums have been fully paid. The term refers to the total face amount of a Life insurer's portfolio of business. In Health Insurance it refers to the total premium volume of an insurer's portfolio of business.
Incidents of Ownership
Various rights that may be exercised under the policy contract by the policy owner. Some of the incidents of ownership would be: (1) the right to cash in the policy, (2) to receive a loan on the cash value of the policy, and (3) to change the beneficiary.
A Life Insurance contract which provides income on a monthly basis, as opposed to a policy which pays proceeds in a lump sum.
A system of protection against loss in which a number of individuals agree to pay certain sums of money, called premiums, to create a pool of money which will guarantee that the individuals will be compensated for losses caused by events such as fire, accident, illness, or death.
A representative of an insurance company who sells insurance. An insurance agent locates prospective insurance customers, determines the insurance needs of each customer, and assists the customer in applying for insurance. Typically, an insurance agent will deliver the policy when the application is approved, will collect the initial premium, and will provide customer service to policy owners. Also called an agent, a field underwriter, or a life underwriter.
Insurance in Force
The face amounts of contracts still to be paid out to insureds.
In the calculation of premium, it is the rate of return on the company's investment of premium dollars over the lifetime of the policy. Insurance company investment experience will affect life insurance cost.
A beneficiary that cannot be changed without his consent.
Joint and Survivorship Annuity
An annuity which is payable to the named annuitants during the period of their joint lives which will continue to the survivor when the first annuitant dies.
Insurance written on two or more persons with benefits usually payable only at the first death.
Joint Life and Survivorship Annuity
A contract which provides income to two or more people and continues in force as long as any one of them survives.
Joint Life Annuity
This policy pays a benefit which continues throughout the joint lifetime of two people but terminates at the first death.
A popular name for a Life Insurance contract written on the life of a child, usually in units of $1,000. When the child reaches a prescribed age, generally 21, the face of the policy is increased automatically without the imposition of either an additional premium charge or a medical examination. Hence the term "jumping" juvenile.
The net cost of a Life Insurance contract which is found by subtracting the cash value of the contract at the end of a given year from the premiums paid, less all dividends.
Level Premium Insurance
That form if insurance for which the premium remains the same throughout the life of the contract. Most Whole Life Insurance is paid for in this way. The amount of a level premium is higher than needed for the protection afforded in the early years of the contract but less than needed for protection in the later years. It is a method of leveling off the cost of insurance so as not to have it increase each year until it becomes unaffordable. See also Net Level Premium.
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 Insurance.
Life Expectancy Term Insurance
A form of Term Life Insurance that provides protection for a person's "expectation of life." This becomes the term of the policy, as opposed to the ordinary Term policies which are for a given number of years or to a stated age, such as 65.
A settlement option under which equal installments are paid as long as the beneficiary lives, even if the principal has been exhausted.
An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured, or under other circumstances specified in the contract, such as total disability.
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.
Life Insurers Conference
An organization that provides for exchange of information on management problems among the member insurers.
Life Paid up at Age
A form of limited payment Life Insurance that provides protection for the whole of life but with payment of premiums to stop at a particular age, thus paying up the policy. A common form would be Life Paid Up At Age 65.
Usually, a Life Insurance agent. It can be more narrowly defined as a risk appraiser. See also Risk Appraiser.
(1) A policy guaranteed renewable or noncancellable to age 65 or some later date. (2) A policy paying disability benefits for life.
Limited Payment Life
A Life Insurance contract providing protection for the whole of life with premiums paid for an indicated number of years. See also Life Paid Up At Age.
A method of settlement whereby the beneficiary receives the entire proceeds of a policy at once rather than in installments.
In insurance, a policy matures when its face amount becomes payable. This could occur upon the death of the insured, or in some forms of insurance such as endowments, as of a specified date.
The date at which the face amount of a Life Insurance policy becomes payable by reason of either death or endowment.
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.
The examination of an applicant for insurance or a claimant by a physician who acts in the capacity of the insurer's agent.
Medical Information Bureau (MIB)
A data pool service that stores coded information on the health histories of persons who have applied for insurance from subscribing companies in the past. Most Life and Health insurers subscribe to this bureau to get more complete underwriting information.
Minimum Deposit Policy
A Cash Value Life Insurance policy having a first-year loan value that is available to borrow against immediately upon payment of the first-year premium. This is not the case with most Life Insurance policies, the main reason being high first-year expenses.
Monthly Debit Ordinary (MDO)
Ordinary Insurance the premiums for which are collected at the door monthly in the same fashion as Industrial policies.
The number of deaths in a group of people, usually expressed as deaths per thousand. It can be the rate for the total population, called the crude mortality rate, or it can be refined by factors such as age groupings or causes of deaths. Same as Death Rate.
In Life and Health Insurance, a policy covering a mortgagor from which the benefits are intended (1) to pay off the balance due on a mortgage upon the death of the insured, or (2) to meet the payments on a mortgage as they fall due in the case of his death or disability. Also called Mortgage Redemption Insurance.
A provision that some or all of the benefits under a policy will be increased by a stated multiple, such as 100% or 200%, in the event that a peril occurs in a specified way, e.g., double indemnity on Life Insurance for accidental death.
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.
The pure mortality cost of Life Insurance for one year at any given age. See also Pure Premium.
Net Level Premium
The pure mortality cost of a Life Insurance policy from its inception to its maturity date, divided by the number of years the policy is to be in force. See also Level Premium Insurance.
Net Level Premium Reserve
The reserve needed by an insurer to cover net level policies which are in their later years. Loosely speaking, the level premium system of paying for a long-term Life or Health policy involves overpayment in the early years and underpayment in the later years. (LI,H)
Those values in a Life Insurance 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.
Ordinary Life Policy
A Whole Life policy for which premiums are paid continuously as long as the insured lives. Same as Straight Life Policy. See also Whole Life Insurance.
Paid-Up Additions (or "Adds")
See Dividend Additions.
Permanent Life Insurance
A term loosely applied to Life Insurance policy forms other than Group and Term, usually Cash Value Life Insurance, such as endowments and Whole or Ordinary Life policies.
A loan made by an insurer to a policy owner of a part or all of the cash value of the policy assigned as security for the loan. This is one of the usual nonforfeiture values.
The amount actually paid on a life insurance policy at death or when the insured receives payment at surrender or maturity. It includes any dividends left on deposit and the value of any additional insurance purchased with dividends; and it excludes any loans not repaid, plus unpaid interest on those loans.
The beneficiary named as first to receive proceeds or benefits from a policy when they become due.
The amount payable in one sum in the event of accidental death or certain accidental dismemberments. When a contract provides benefits for both accidental death and accidental dismemberment, each dismemberment benefit is an amount equal to the principal sum or some fraction thereof. Examples would be half the principal sum for loss of one arm, half the principal sum for the loss of one leg, etc.
The amount payable by a policy, usually in reference to the face amount of a Life Insurance policy, payable at the death of the insured.
An endowment payable if the designated person is alive at the end of the endowment period but not payable if the person is not alive at that time. This type of policy is not often used today.
Reduced Paid-up Insurance
A form of insurance available as a nonforfeiture option. It 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, which will be less than the original face amount in most cases. See also Nonforfeiture values.
Term Insurance that may be renewed for another term without evidence of insurability.
The beneficiary in a Life Insurance policy in which the owner reserves the right to revoke or change the beneficiary.
An employee of a Life insurer who screens the applications submitted. He may accept an applicant, reject him, or propose an alternative policy or premium.
Risk Premium Insurance
See Yearly Renewable Term.
Savings Bank Life Insurance
Life Insurance sold by mutual savings banks. Allowed only in a few states, such as New York, Connecticut, and Massachusetts.
The second person named to receive benefits upon the death of an insured if the first-named beneficiary is not alive or does not collect all the benefits before his or her own death. See also Contingent Beneficiary.
Single Premium Policy
A Life Insurance policy paid for in one single premium in advance rather than in annual premiums over a period of time.
Split Life Insurance
A combination of Installment Annuity and Term Insurance under which the amount of annuity consideration (premium) paid determines the amount of one-year renewable Term Insurance an annuitant can purchase and place on the life of anyone designated.
(1) Provisions prescribed by state law that must appear in all policies issued in that jurisdiction. (2) Provisions adopted by the NAIC to apply to group Life Insurance as minimum protection. They are required by law in most states. (3) Formerly, a set of prescribed provisions regulating the operating conditions of a Health Insurance policy required by law in most jurisdictions between about 1912 and 1950. They are now superseded by uniform provisions for Individual Accident and Health Insurance policies which contain an NAIC model bill. These have been enacted in virtually all jurisdictions.
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 loadings or restrictions because of poor health.
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.
See Cash Surrender Value.
Funds available to pay an annuitant who survives longer than statistically expected from premiums paid by annuitants who died before they had collected amounts equal to their contributions.
Third-Party Administrator (TPA)
A consultant to the insured employer that maintains all records about employees covered under the health care plan.
The type of Life Insurance policy that provides protection only for a specified period of time. A common policy period would be one year, five years, 10 years, or until the insured reaches age 65 or 70. It does not build up any of the nonforfeiture values associated with Whole Life policies. Contrast with Whole Life Insurance.
The cessation of premium paying for a Whole Life or Endowment policy before the agreed upon time. This ends the coverage, and the insured receives one of the nonforfeiture values. The cessation of a policy that does not or has not yet developed a cash value is termed a "lapse."
A form of Life Insurance that is usually a combination of Whole Life and twice as much Term Insurance. The Term portion applies until a stated date. Such a policy might be used to provide maximum protection to an individual at an earlier age when the need for insurance is greater but the ability to pay is less.
A combination flexible premium, adjustable life insurance policy. The premium payer may select the amount of premium he or she can pay and the policy benefits are those which the premium will purchase. Or, the premium payer may change the amount of insurance and pay premium accordingly. Many believe this is the only true solution to the "buy term invest the difference" problem.
Variable Life Insurance
A form whose face value varies depending upon the value of the dollar or securities or other equity products at the time payment is due.
Variable Universal Life
A combination of the features of Variable Life Insurance and Universal Life Insurance under the same contract. Benefits are variable based on the value of equity investments, and premiums and benefits are adjustable at the option of the policyholder.
Whole Life Insurance
Insurance which may be kept in force for a person's whole life and which pays a benefit upon his death, whenever that may be. All Whole Life policies build up nonforfeiture values, but they are paid for in 3 different ways. Under a Straight or Ordinary Life policy, premiums are paid for as long as the insured lives. A single premium policy is paid for at one time in one premium. Between these two types there are many limited-payment plans, under which the insured pays premiums for a certain period or until reaching a certain age. Contrast with Term Insurance.
Yearly (or Annual) Renewable Term (YRT)
(1) Term Life Insurance that may be renewed annually without evidence of insurability until some stated age. (2) A form of Life, and sometimes Health, Reinsurance in which the reinsurer assumes only the mortality risk, which is usually calculated as the face amount of reinsurance minus the terminal reserve.