Glossary

Confused by life insurance terms you've heard or read? Then use our indepth glossary for definitions of the terms.

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ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) RIDER
A supplementary benefit rider or endorsement that provides for an amount of money in addition to the basic death benefit of a life insurance policy. This additional amount is payable only if the insured dies or loses any two limbs or the sight of both eyes as the result of an accident. Some AD&D riders pay one half of the benefit amount if the insured loses one limb or the sight in one eye.

ACTUARY
A technical expert in life insurance, particularly in mathematics. A person in this job applies the theory of probability to calculate mortality rates, morbidity rates, lapse rates, premium rates, policy reserves, and other values.

ADJUSTABLE LIFE INSURANCE POLICY
A life insurance contract designed specifically to allow the policyowner to alter the policy's plan by changing the amount of the coverage or the amount of the premium. The insurer calculates the specific plan of insurance that can be provided based on the requested death benefit and premium. Therefore, an adjustable life insurance policy can use insurance plans that range from a term insurance policy of short duration to a limited-payment whole life insurance policy.

ANNUITY
(1) A series of payments made or received at regular intervals. (2) A contract that provides for a series of payments to be made or received at regular intervals.

BENEFICIARY
The person or other party designated to receive life insurance policy proceeds. See also contingent beneficiary, irrevocable beneficiary, primary beneficiary, and revocable beneficiary.

BENEFIT OF SURVIVORSHIP
Describes the fact that annuity payments will be made as long as the designated recipient is alive at the time the payment is due. This concept is used in the calculation of amounts due under life insurance settlement options.

BENEFIT
The amount of money paid when an insurance claim is approved. Also called the policy benefit.

BUSINESS-CONTINUATION INSURANCE
A type of business insurance designed to provide funds so the remaining partners in a business, or the remaining stockholders in a closely-held corporation, can buy the business interest of a deceased or disabled partner or stockholder.

CASH VALUE
In a life insurance policy, the amount of money, before adjustment for factors such as policy loans or late premiums, that the policyowner will receive if the policyowner allows the policy to lapse or cancels the coverage and surrenders the policy to the insurance company. Cash values are a feature of most types of permanent life insurance, such as whole life and universal life. Also called inside build-up and policyowner's equity.

CONVERSION PRIVILEGE
(1) The right of a person who is covered by a group insurance policy to convert his or her group coverage to coverage under an individual insurance policy. Such a conversion can be made when a person leaves the group, benefits are downgraded or terminated for a specific class, or when the group master policy is ended. (2) The right to change insurance coverage in certain prescribed situations from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.

CONVERTIBLE TERM INSURANCE
A type of term insurance that allows the policyowner to change the term insurance policy to a whole life policy without providing evidence of insurability. The premium rate is normally based on the age of the insured at the time of the conversion.

DEATH BENEFIT
The amount of money paid or due to be paid when a person insured under a life insurance policy dies. This amount does not include adjustments for outstanding policy loans, dividends, paid-up additions, or late premium payments.

DEDUCTIBLE
A flat amount that an insured must pay before the insurance company will make any benefit payments under a health insurance policy. Also called the deductible amount or initial deductible.

DEMUTUALIZATION
The process of converting a mutual insurance company to a stock insurance company.

DISABILITY BENEFITS
Benefits that are payable periodically while an insured continues to be disabled. "Being disabled" is generally defined in terms of inability to work.

DOUBLE INDEMNITY
Death benefit coverage that pays an additional benefit equal to the basic death benefit of the policy if the insured's death is accidental.

ESTATE PLANNING
An insurance program designed not only to provide funds for the prospect's dependents upon the death of the prospect, but also to conserve, as much as possible, the personal assets that the prospect wants to bequeath to heirs. Estate planning usually involves accountants, lawyers, and the trust officers of banks, as well as insurance agents.

FAMILY INCOME INSURANCE
A specialized individual policy that commonly combines whole life insurance with decreasing term insurance. The whole life insurance portion of the policy is usually paid as a lump sum when the insured dies. The decreasing term insurance portion of the policy provides an income for a predetermined period to help support the insured's family.

FIDUCIARY
A person or organization who holds, manages and has discretionary authority and control over money belonging to another person or organization, or who renders investment advice in exchange for compensation. When an insurance company manages pension funds, the insurance company is acting as a fiduciary.

FRAUDULENT CLAIM
A type of claim that occurs when a claimant intentionally uses false information in an attempt to collect policy proceeds.

GENERAL AGENT (GA)
The individual in charge of a field office of an insurer that uses the general agency distribution system. The general agent is an independent entrepreneur who is under contract to the insurer.

GRACE PERIOD
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.

IMPAIRMENT
Any aspect of the health, occupation, activities, or life-style of a proposed insured that could increase his or her expected mortality or morbidity.

INDIVIDUAL RETIREMENT ACCOUNT (IRA)
In the United States, a tax-sheltered savings plan that allows some citizens to make pre-tax contributions to an approved account. The contributions and investment earnings are taxable as income only when paid out. Investors can establish IRAs through a number of financial institutions, including insurance companies.

JOINT AND SURVIVOR ANNUITY
An annuity under which a series of payments is made to two or more annuitants. The annuity payments continue until both or all of the annuitants have died. Also called a joint and last survivorship annuity.

JOINT AND SURVIVORSHIP OPTION
A life insurance settlement option under which payments will be made to two or more payees. These payments will continue until both or all the named payees are deceased.

KEY EMPLOYEE
In pension planning in the United States, a highly paid employee who satisfies any one of four criteria relating to compensation and company ownership. The criteria are described in legislation and tax rules. The amount of benefits accrued to key employees in a pension plan, as compared to benefits accrued to other employees, is the major factor in determining whether the plan is a top-heavy employee benefit plan.

KEY-PERSON INSURANCE
Life insurance purchased by a business on the life of a person (usually an employee) whose continued participation in the business is necessary to the firm's success and whose death or disability would cause financial loss to the company.

LEVEL PREMIUMS
Premiums that remain the same each year that the life insurance policy is in force.

LIFE ANNUITY WITH PERIOD CERTAIN
A life annuity which promises that if the annuitant dies before the end of a designated period (usually 5, 10, or 20 years), the insurer will continue payments to a contingent payee until the end of the designated period. Also called a life income with period certain annuity.

LIFE INSURANCE
Insurance that provides protection against the economic loss caused by the death of the person insured.

LONG-TERM CARE (LTC) INSURANCE
Coverage available on an individual or group basis to provide medical and other services to patients who need constant care in their own home or in a nursing home.

LONG-TERM DISABILITY INCOME INSURANCE
Disability income insurance which typically provides disability income benefits that begin at the end of a specified waiting period and that continue until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pension benefits.

MATERIAL FACT
A fact that is relevant to an insurance company's underwriting decision regarding issuing or rating a policy.

MATERIAL MISREPRESENTATION
In insurance, a misstatement by an applicant that is relevant to the insurer's acceptance of the risk, because, if the truth had been known, the insurer would not have issued the policy or would have issued the policy on a different basis.

MISREPRESENTATION
(1) A false or misleading statement made to induce a prospect to purchase insurance. Misrepresentation is a prohibited insurance sales practice. (2) A false or misleading statement made by an applicant for insurance. Certain misrepresentations provide a basis for the insurer to avoid the policy.

MISSTATEMENT OF AGE PROVISION
Life insurance policy wording that specifies the action the insurer will take if, at the insured's death, the insurer discovers that the insured's age was misstated in the application and the misstatement has resulted in an incorrect premium for the amount of insurance purchased. In an individual life insurance policy, this provision specifies that the policy's benefit amount will be adjusted. In a group insurance policy, this provision generally specifies that the policy's premium amount will be adjusted.

NONSMOKER RISK CLASS
An underwriting risk class that includes people who are standard risks and who have not smoked cigarettes for a specified period of time, usually 12 months, before applying for insurance. People in the nonsmoker risk class pay lower than standard premiums.

PARTIAL DISABILITY BENEFIT
A flat amount specified in a disability income insurance policy that is payable when the insured suffers a partial disability. Usually the partial disability benefit is half the full disability benefit.

PARTIAL DISABILITY
A disability that prevents an insured from engaging in some of the duties of his or her usual occupation or from engaging in the occupation on a full-time basis.

PARTNERSHIP INSURANCE
A type of business insurance designed to provide funds so the remaining partners in a business can buy the business interest of a deceased or disabled partner. See also business-continuation insurance.

PAYEE
The person to whom benefits are payable under a supplementary contract.

POLICY
A written document that serves as evidence of an insurance contract and contains the pertinent facts about the policyowner, the insurance coverage, the insured, and the insurer.

PREMIUM
The payment, or one of a series of payments, required by the insurer to put an insurance policy in force and keep it in force.

PRIMARY BENEFICIARY
The party or parties who have first rights to receive policy benefits when the benefits of an insurance policy become payable.

REGISTERED REPRESENTATIVE
Any person who is licensed with the National Association of Securities Dealers and who is engaged either in selling securities as the agent or representative of a broker-dealer or in training the sales persons associated with a broker-dealer.

REINSTATEMENT
The process by which a life insurance company puts back in force a policy that had lapsed because of nonpayment of renewal premiums.

REINSURANCE
A transaction between two insurance companies in which one company purchases insurance from the other to cover part or all of the risks that the first company does not wish to retain in full.

RENEWAL PREMIUMS
Premiums payable after the initial premium.

RENEWAL PROVISION
(1) An individual life insurance policy provision that gives the policyowner the right to continue the insurance coverage at the end of the specified term without submitting evidence of continued insurability. (2) A provision in an individual health insurance policy describing the circumstances under which the insurance company may refuse to renew the coverage, may cancel the coverage, or may increase the policy's premium rate.

RISK CLASS
A group of insureds who present a substantially similar risk to the insurance company. Among the most common risk classes used by life insurance companies are standard, preferred, nonsmoker, substandard, and uninsurable.

SOCIAL SECURITY DISABILITY INCOME (SSDI)
In the United States, a long-term disability income program that provides benefits to disabled workers who are under age 65 and who have paid a specified amount of Social Security tax for a prescribed number of quarter-year periods.

SOCIAL SECURITY
In the United States, a program of the United States federal government that provides retirement income, health care for the aged, and disability coverage for eligible workers and their dependents.

SOLE PROPRIETORSHIP INSURANCE
Insurance on the life of the sole proprietor of a business. Sole proprietorship insurance is used either to pay the salary of someone hired to run the business after the owner's death or disablement or to compensate the owner's family for the loss of potential income due to the failure of the business after the owner's death or disability.

TERM INSURANCE
Life insurance under which the benefit is payable only if the insured dies during a specified period. See also convertible term insurance, credit life insurance, decreasing term insurance, deposit term insurance, family income insurance, increasing term insurance, level term insurance, mortgage redemption insurance, and renewable term insurance.

TESTAMENTARY DISPOSITION
In life insurance, the use of a will to indicate the person or party to whom the proceeds of a life insurance policy should be distributed.

TOTAL DISABILITY
When a disability begins, it is typically considered a "total disability" if it prevents an insured person from performing the essential duties of his or her regular occupation. Under many insurance policies, the definition of total disability changes at the end of a specified period after the disability begins, usually two years. Therefore, insureds are considered totally disabled only if their disabilities prevent them from working at any occupation for which they are reasonably fitted by education, training, or experience.

TRIPLE INDEMNITY
A type of accidental death benefit coverage that pays an additional benefit equal to twice the policy's basic death benefit if the accident is sustained while the insured is a passenger in a public conveyance operated by a licensed common carrier, such as a bus, train, or airplane.

UNDERWRITER
(1) The person who assesses and classifies the potential degree of risk that a proposed insured represents. (2) The person or organization that guarantees that money will be available to pay for losses that are insured against. In this sense, the insurance company is the underwriter.

UNDERWRITING
(1) The process of assessing and classifying the potential degree of risk that a proposed insured represents. Also called selection of risks. (2) Providing guarantees that money will be available to pay for losses that are insured against.

UNIVERSAL LIFE INSURANCE
An unbundled whole life insurance product in which the mortality, investment, and expense factors used to calculate premium rates and cash values are expressed separately in the policy. In a universal life insurance policy, any applicable expense charges are deducted from the premium and the remainder of the premium is then credited to the policy's cash value. Each month the insurer deducts the mortality and any other costs from the cash value and credits the remainder of the cash value with interest.

VARIABLE ANNUITY
A form of annuity policy under which the amount of each benefit payment is not guaranteed and specified in the policy. The amounts of the benefit payments fluctuate according to the earnings of a separate account fund.

VARIABLE LIFE INSURANCE
A form of whole life insurance under which the death benefit and the cash value of the policy fluctuate according to the investment performance of a separate account fund. Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum. A minimum cash value is seldom guaranteed. Because the policyowner assumes investment risk under variable life insurance policies, these products are considered securities contracts. In the United States, variable life insurance policies must be registered with the Securities and Exchange Commission (SEC), and only agents who have passed the National Association of Securities Dealers (NASD) examination may sell this product.

WHOLE LIFE ANNUITY
A mathematical term for a series of regular periodic payments, each of which is made only if a designated payee is then alive, with the payments continuing for that payee's entire life.

WHOLE LIFE INSURANCE
Life insurance that remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy. Whole life insurance also builds a savings element (called the cash value) as a result of the level premium approach to funding the death benefit.

YEARLY RENEWABLE TERM (YRT) INSURANCE
Term life insurance that gives the policyowner the right to continue the coverage at the end of each year. This renewal right continues for a specified number of years or until the insured reaches the age specified in the contract. Also called annually renewable term (ART) insurance.

December 13, 2018