Glossary
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
A.M. Best
An independent insurance rating firm that ranks firms on financial strength,
operating performance and market profile.
Accelerated Death Benefit
Provides a loan secured by the death benefit while the insured person is
terminally ill or meets certain other conditions. The owner must furnish
medical proof of the terminal illness or other condition.
Accept/Reject Underwriting
An acceptance or rejection for underwriting based on the answers to the
questions on the application. An applicant is either accepted and issued
a policy or rejected and denied coverage. In most cases, no additional medical
records or tests are required to determine an applicant's eligibility.
Accidental Death Benefit
An additional death benefit to be paid if death is a direct result of an
accident in accordance with the terms of the policy.
Activities of Daily Living
(ADLs) There are six activities considered ADLs, which are routine daily
activities generally considered necessary for a self-sustaining person
to remain independent. The six ADLs are eating, bathing, continence,
dressing, toileting, and transferring.
Actuary
A person who uses mathematics and statistics to determine insurance and
annuity calculations, such as life expectancy, premiums, rates, etc.
Annuitant
The person whose lifetime is used as the measuring period to determine how
long benefits are payable under a life annuity.
Annuity
A means of saving money on a tax-deferred basis, when purchased from an
insurance company. The monies in the annuity can be paid to you as a partial
withdrawal, as a full withdrawal, or as a guaranteed income, usually at
retirement.
Annuity Payments
Money you receive or your beneficiary receives from your annuity. The type
and dollar value of the annuity you purchase determine when and how such
money is paid out.
[ top ]
B
Benchmark
A point of reference used for comparison.
Beneficiary
The party or parties you designate as the recipient(s) of the death proceeds
from your life insurance policy or annuity.
Benefit
The amount of money paid when an insurance claim is approved; also referred
to as policy benefit.
[ top ]
C
Cash Value
The cash you receive if you cancel a life insurance policy or annuity that
builds cash value. In a life insurance policy, the cash value is 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.
Compound Interest
Interest paid on an initial investment (principal), as well as on the accrued
interest.
Compounding
The process by which the value of an investment increases exponentially
over time because of compound interest.
Convertible Term Insurance
Life insurance coverage that you purchase to cover you for a specific period
of time that can, during or at the end of the term, be converted to permanent
life insurance. The permanent life coverage is available to you regardless
of your health.
Current Interest Rate
The current rate of interest earned on a life insurance or annuity policy
contract.
[ top ]
D
Death Benefit
Under a life insurance policy or annuity, the amount your beneficiary would
be paid if you die while the policy is in effect. The amount is stated in
the policy and is paid at face value plus the proceeds from any applicable
insurance riders, minus any outstanding loan amounts.
Death Claim
A request for payment due to death under the terms of a life insurance policy
or annuity contract.
Deferred Annuity
A financial product that allows you to accumulate money on a tax-deferred
basis, when purchased from an insurance company, that can subsequently be
paid out as income stream or taken in a lump sum.
Defined-Benefit Plan
A retirement plan sponsored by your employer in which the benefits you receive
at retirement are clearly defined and are not based on the amount you and/or
your employer have contributed.
Defined-Contribution Plan
A retirement plan sponsored by your employer in which the benefits you receive
at retirement are based solely on the contributions made by you and your
employer and the earnings thereon. A 401K is a defined-contribution plan.
Disability
Inability to work due to an injury or sickness.
Double Indemnity
A provision in certain life insurance policies (also known as an accidental
death benefit) that pays double the death benefit to your beneficiary if
you should die in an accident or in another way as specified by your policy.
Duplicate Policy/Contract
A duplicate policy for a life insurance product or a duplicate contract
for a fixed annuity that policyholders can request if an original policy
or contract is lost or destroyed.
[ top ]
E
Electronic Funds Transfer (EFT)
A means of electronically depositing your earnings to or withdrawing payments
from your bank.
Endorsement
An agreement attached to an insurance policy that adds or subtracts coverage
and takes the place of the original terms of your policy.
Extended Coverage
A written agreement or clause added to your insurance policy that gives
you additional coverage beyond the coverage provided for by your basic policy.
[ top ]
F
401(k) Plan
A defined-contribution retirement savings account that lets you make pretax
contributions up to a certain annual limit. Contributions may be matched
by your employer.
403(b) Plan
Similar to a 401(k) plan but available only to employees of nonprofit organizations
or public school system.
Face Amount
Under a life insurance policy, the basic amount of life insurance coverage.
Federal Deposit Insurance Company (FDIC)
The federal government's bank deposit insurer.
Financial Planning
The process of developing and implementing a coordinated plan for achievement
of financial objectives. It could include income tax planning, retirement
planning, investment planning, risk management, and estate planning.
Fitch
An independent insurance rating firm that rates firms based on financial strength.
Fixed-Rate Loan
A loan whose interest stays the same throughout the life of the loan.
[ top ]
G
Gift
A transfer of property from one person to another without adequate and full consideration.
Gift Expense
Expenses that should be considered in your monthly gift expense total would be birthdays,
holidays, anniversaries, and other miscellaneous gift expenses.
Gift Tax
Tax paid on the transfer of assets. It can be fully or partially offset by the annual gift tax exclusion
and the applicable credit amount (formerly known as the unified credit).
Grace Period
The period of time after a loan or insurance payment due date before cancellation
of the policy or default due to non-payment.
Guaranteed Interest Rate
The minimum rate of interest guaranteed to be creditied to a life insurance
policy or annuity contract.
Guaranteed Renewable
An insurance policy provision that guarantees you the right to renew the
policy for the period stated in the policy, as long as you pay the premiums.
Premiums may increase, but your coverage cannot be changed or denied.
[ top ]
H
Highly Compensated
An employee is highly compensated if he or she: (1) was a 5% owner of the employer,
or (2) received compensation for the preceding year in excess of $95,000.
[ top ]
I
Immediate Annuity
An annuity that begins paying out income payments within 12 months or less
after the premium is paid.
In Situ
Medical term used to describe a diagnosis of cancer wherein the tumor cells
still lie within the tissue of the site of origin without having invaded neighboring tissue.
Index
A measurement of the changes in the economy and financial markets.
Indexed Universal Life Insurance
Universal Life Insurance product that offers growth potential
through the ability to earn Indexed Interest Credits linked,
in part, to the performance of the Standard & Poor’s 5001
Composite Stock Price Index (excluding dividends), or S&P 500®1,
with protection from downside risk through a minimum interest rate guarantee.
Individual Retirement Account (IRA)
A tax-deferred savings vehicle with a financial institution in which contributions
may be invested in stocks, bonds, money market funds, etc.
Insurance Amount
Basic policy coverage amount and, if applicable, any supplementary term
coverage.
Insured Insurability Benefit
Provides the insured with the right to purchase additional insurance on
specified option dates occurring after issue of the original policy without
evidence of insurability.
Irrevocable Beneficiary
A permanent, unchangeable designation of your beneficiary.
Irrevocable Trust
A trust agreement that cannot be altered, amended, revoked, or terminated
and is generally not subject to estate taxes.
Issue Age
The age of the insured on the date upon which a policy became effective.
[ top ]
J
Joint Life Insurance
One insurance policy that covers two lives, with benefits payable either
at the first death or the second death.
Joint Owner
A person named jointly with another person as owner of an annuity contract
or life insurance policy.
Joint Tenancy with Rights of Survivorship
Equal ownership of property by you and at least one other person. When you
die, your interest passes to the other co-owner(s) instead of to your estate.
[ top ]
K
Keogh Plan
A type of tax-deferred retirement account for self-employed persons.
Key Employees
For purposes of the top-heavy rules, a key employee is one who is (1) an
officer whose salary exceeds $135,000 (officer status is limited to the greater
of three or 10% of all employees, but not more than 50), (2) a more-than-5% owner
of the employer, or (3) a more-than-1% owner of the employer whose salary exceeds
$150,000.
[ top ]
L
Life Annuity
An annuity that pays out income periodically for your life and ends upon
your death.
Life Expectancy
A statistical measurement of the number of years a person is expected to
live.
Life Insurance
A policy that pays your beneficiary a specified amount upon your death.
Limited Benefit
Benefit is reduced for certain conditions.
Loan Interest Rate
The percentage of interest charged when the basic policy value is released
in the form of a policy loan. The applicable rate is stated in the policy
contract.
Loan Value
An amount you can borrow from your life insurance policy.
[ top ]
M
Medical Exam
A brief physical examination that may be required to confirm height, weight
and overall general health; commonly referred to as a ParaMed exam.
MEC
A "MEC" is a modified endowment contract. A modified endowment
contract is a life insurance contract that does not satisfy the "7-Pay
Test" as referenced in the Internal Revenue Code Section 7702A.
[ top ]
N
No Lapse Guarantee
Agreement by the insurance company to keep the Universal Life Insurance policy
in force, even if the Cash Value becomes zero or less than zero, provided
that a specified Minimum Continuation Premium is made at the required time.
[ top ]
O
Owner
The person who owns a life insurance policy or fixed annuity.
[ top ]
P
Paid to Date
For traditional life insurance policies, this is the actual date to which
the premium is paid. For universal life policies, this is the date that
the policy costs have been deducted from the cash value fund. In addition,
the Paid to Date for universal life policies is updated each month on the
day of the policy anniversary providing there is sufficient value in the
cash fund.
Policy Number
The identifying number assigned to a policy contract for a life insurance
product or fixed annuity.
Preferred Risk
An insurance underwriting classification that calls for you to pay lower
premiums than other insured persons because you have a lower risk of incurring
a loss.
Premium
The amount of money you pay as a single payment or periodically to maintain
insurance coverage.
Premium Payer
If other than the owner, the person to whom notices are mailed and who remits the
premium payments to the Company. The premium payer has only limited rights regarding
access to policy or annuity information.
Prospectus
A formal document that describes investment objectives and risks, used by
investors to make informed decisions when purchased variable life insurance
or other securities.
Pure Insurance
In life insurance, the difference between the face amount and cash value.
Also referred to as the net amount at risk.
[ top ]
Q
Qualified Distribution
Qualified distribution from a Roth IRA must satisfy a five-year holding
period and one of four requirements: (1) made on or after age 59½;
(2) made to beneficiary on or after individual's death; (3) attributable
to being disabled; or (4) used to pay for qualified first-time home buyer
expenses.
Qualified Plan
A tax-deferred savings plan, such as a profit-sharing or a pension plan,
or individual retirement account (IRA).
[ top ]
R
Rated Policy
Insurance that costs you a higher premium because you have a physical impairment,
past medical condition, hazardous occupation, dangerous hobby, or some other
underwriting risk.
Relationship
Defines how an individual or organization is connected to a life insurance
policy or fixed annuity contract. The most common relationships are insured,
owner, and payer.
Relationship to Insured/Annuitant
Defines how a beneficiary is related to the insured/annuitant (e.g., spouse,
mother, brother, friend, etc.).
Requirements
A variety of different items that are ordered for examination by underwriters
in order to effectively evaluate risk and make an assessment on an applicant's
insurability. These requirements are obtained from several independent third-party
providers of such information.
Return of Premium
Specific policies, upon the insured' death, will return to the owner
or to the owner's beneficiary if the owner is deceased or to the owner's
estate if there is nstrongo beneficiary, all or part of the premiums paid.
Reviewed Date
The date on which an underwriter evaluates an underwriting requirement.
Rider
An attachment that amends a contract or policy.
Rider Status
Indicates the present status of the rider.
Rollover IRA
An IRA that allows an individual to consolidate retirement dollars from
a number of sources, such as 401(k), 403(b), or governmental 457 plans.
Roth Conversion IRA
An IRA that is established by converting assets from a Traditional or Rollover
IRA into a Roth IRA.
Roth IRA
A retirement savings vehicle in which contributions are made with after-tax
dollars. Withdrawals of contributions can be made without taxes at any time.
Withdrawals of earnings are taxable but only when the withdrawal is not
a “qualified” distribution.
[ top ]
S
Securities and Exchange Commission (SEC)
A federal agency charged with overseeing and regulating certain U.S. financial
markets.
Single Premium Deferred Annuity
A single-premium deferred annuity allows for one single, lump-sum contribution.
Your money grows tax-deferred until you withdraw it or begin receiving a stream of income payments.
Single Premium Immediate Annuity
A single-premium immediate annuity generates income payments one period after you
purchase the annuity. Single-premium immediate annuities allow you to set up an
immediate, steady income stream with a one-time, lump-sum contribution.
Social Security Number (SSN)
A nine-digit identification number issued by Social Security.
Spouse Accidental Death Benefit
Additional death benefit to be paid if the death of the spouse is a result
of an accident.
Spouse Death Benefit
Death benefit amount for a spouse covered by a spouse rider.
Standard and Poor's (S&P)
A leading rating agency in the evaluation of the financial soundness of
corporations and businesses, used for investment performance measurement.
Status
The current standing of a policy or contract.
Surrender Fee/Charge
An amount deducted from your policy value when you surrender your life insurance
policy or annuity and receive the cash value during certain periods specified
in the policy.
Survivorship Life Insurance
Also called second-to-die or last-to-die insurance. Survivorship life insurance covers the
lives of two people, and pays benefits when the second person dies. It is often used
by couples to fund estate tax liability.
[ top ]
T
Tax-Deferred
Postponement of the payment of taxes on a retirement or annuity plan until
the income payments begin.
Tax-Deferred Retirement Plan
A retirement savings plan that lets you make contributions and accumulate
earnings tax-free until you receive them as benefits, at which time you
are normally in a lower tax bracket.
Taxpayer Identification Number (TIN)
A nine-digit taxpaying identification number assigned by the United States
Internal Revenue Service to an individual or business.
Term Life Insurance
Life insurance that provides coverage for a specific time period.
Traditional IRA
An IRA that may have deductible contributions. Earnings grow tax-deferred
until withdrawn.
Trust
Property interest held by one person for the benefit of another.
[ top ]
U
Underwriting
The process used by insurance companies to determine how much life or other
types of insurance you can qualify for and at what price, based upon your
risk factors.
Universal Life Insurance
Life insurance that builds tax-deferred cash value for you either at a guaranteed
minimum rate of return plus an additional return as credited by the insurance
company or based upon market performance. It also lets you change the amount
of your premium payments and/or coverage amount within certain limits, depending
on your circumstances or needs.
[ top ]
V
Variable Rate Loan
A loan with an interest rate that changes depending on changes in a specified
measure, such as the prime rate.
Variable Universal Life Insurance
Life insurance that builds tax-deferred cash value and includes features
of both variable and universal life insurance coverage. The value of the
policy depends upon the performance of the underlying investments selected.
Like universal life, the premium and coverage options are flexible, within
certain limits. You are subject to investment risk, including loss of principal.
[ top ]
W
Waiver of Premium
An optional benefit on some insurance policies that either pays all or a
portion of premiums due, or waives premiums, if the insured becomes totally
disabled.
Whole Life Insurance
Permanent life insurance that provides protection to age 100 as long as you pay the fixed
premiums. Accumulates tax-deferred cash value that you can borrow against through an
interest-bearing loan or receive if you surrender the policy.
[ top ]
X/Y/Z
[ top ]
