Definitions and Types of Insurance

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  • Accelerated Benefit Provision
    A provision in many new policies which will allow the policy owner to receive a portion of the death benefit early if the insured person is diagnosed with a terminal illness.
  • Accidental Death Benefit Rider
    A rider added to a policy that provides an additional benefit if the insured dies from accidental causes.
  • Agent
    A licensed person or organization authorized to sell insurance by or on behalf of an insurance company.
  • Annual Renewable Term
    “A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or coverage each year, without evidence of insurability. Also called Yearly Renewable Term (YRT).”
  • Annuities
    The accumulated value of the annuity is converted into a guaranteed stream of income.
  • Annuity Arbitrage
    Involves income from a Single Premium Immediate Annuity while at the same time a pay out to a Universal Life policy.
  • Application

    “Form supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department so it may consider whether an insurance policy will be issued and at what premium rate.”
  • Back Dating

    The practice of making a policy effective at an earlier date than the present date.
  • Beneficiary
    The person(s) named in the policy to receive the life insurance proceeds upon the death of the insured. The various types of beneficiaries are: primary beneficiaries (those first entitled to proceeds); secondary beneficiaries (those entitled to proceeds if no primary beneficiary is living when the insured dies); and tertiary beneficiaries (those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies).
  • Best’s Insurance Report
    “A guide, published by A.M. Best, Inc., that rates insurers’ financial integrity and managerial and operational strengths.”
  • Cash (Surrender) Value
    The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.
  • Concealment
    Failure of the Insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.
  • Conditional Receipt
    “Given to policy owners when they pay a premium at time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.”
  • Convertible Term Insurance
    “Term insurance which can be exchanged (converted), at the option of the policy owner and without evidence of insurability, for a permanent insurance policy.”
  • Evidence of Insurability
    The statement of information required to underwrite an insurance policy.
  • Face Amount
    “The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under the accidental death or other special provisions, or acquired through the application of policy dividends. It will be reduced by any unpaid policy loans and interest on those loans.”
  • Free Look
    “A required period, usually 10 or 20 days after a policy has been delivered to the policy owner (guided by state law), during which the policy can be returned for a refund of all amounts paid.”
  • Grace Period
    “A period of time, usually 30 days after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout the period.”
  • Guaranteed Insurability
    An option that permits the policy holder to buy additional stated amounts of life insurance at certain times in the future without having to provide new evidence of insurability.
  • Illustration
    A document used in a life insurance sales presentation showing yearly numbers indicating how a policy will work.
  • Incontestable Clause
    “Provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured’s lifetime, usually one or two years after issue.”
  • Insurability
    Acceptability to the company of an applicant for insurance.
  • Insurance
    Social device for minimizing risk of uncertainty regarding loss by spreading the risk over a large enough number of similar exposures to predict the individual chance of loss.
  • Insured
    The person on whose life an insurance policy is issued.
  • Insurer

    The insurance company.
  • Key Employee Insurance
    “Protection of a business against financial loss caused by the death or disability of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise”
  • Lapse
    Discontinuation of insurance without cash values when required premiums are not paid.
  • Level Premium

    “A premium that remains the same from year to year, normally more than the actual cost of protection during the earlier years of the policy and less than actual cost in later years. Building a reserve is a natural result of level premiums. The payments in the early years combined with the interest that is earned balance out underpayment in later years.”
  • Loan Value
    The amount which can be borrowed by the policy owner from the company using the value of the policy as collateral. Usually the interest rate payable on the loan varies based on an index defined in the policy.
  • Medical Examination
    “Usually conducted by a licensed physician; the medical report is part of the application, becomes part of the policy contract and is attached to the policy. A non-medical is a short-form medical report filled out by the agent.”
  • Mode of Premium Payment

    “The frequency of premium payments during the policy year. Premium payments can usually be made on annual, semiannual, quarterly or monthly modes.”
  • Mortality Table
    A statistical table showing the death rate (probability of death) at each age.
  • Non-Forfeiture Options
    Provision in the policy which allows policy owner to choose how the cash value of the policy will be used if the policy is surrendered.
  • Other Insured Rider
    A term rider covering a family member other than the insured that is attached to the base policy covering the insured.
  • Ownership
    “All rights, benefits, and privileges under a policy are controlled by the owner, who is usually the insured. Ownership may be transferred or assigned to someone else by written request of the current owner.”
  • Paid-Up Insurance
    Policy on which it is guaranteed that no further premium need be paid.
  • Permanent (Life Insurance)
    “Any form of life insurance except term. Generally, permanent life insurance, such as whole life, builds up a cash value.”
  • Policy
    The printed document issued to the policy owner by the company stating the terms of the insurance contract.
  • Policy Owner
    “The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partner, or a corporation.”
  • Policy Year
    “A one-year period starting on the day and month the policy was issued. The first policy year starts on the date of issue, and ends on the day before the policy’s first anniversary.”
  • Preferred Risk
    “A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age. (See Standard Risk)”
  • Premium
    “The payment, or one of the regular periodic payments, a policy owner is required to make for an insurance policy to keep it in effect.”
  • Premium Financing
    “A policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.”
  • Proceeds
    The net amount of money payable by the company at the insured’s death or at policy maturity.
  • Rate-Up in Age
    System of rating substandard risks that involves assuming the insured to be older than he or she really is and charging a correspondingly higher premium.
  • Rated Policy
    A policy issued with an additional premium to cover the extra risk involved if an insured has impaired health or a hazardous occupation or hobbies.
  • Reinstatement
    “The restoring of a lapsed or surrendered policy to full force and effect. The company requires evidence of insurability, and payment of all amounts necessary, including interest, to put the policy into the condition it would have been in had the lapse or surrender not occurred.”
  • Renewable Term Insurance
    “Term insurance which can be renewed at the end of the term, at the option of the policy owner and without evidence of insurability for successive terms as stipulated in the policy. The rates generally increase at each renewal as the age of the insured increases.”
  • Replacement
    Act of replacing one life insurance policy with another; may be done legally under certain conditions. (See Twisting)
  • Rider
    A provision added to a policy that provides additional benefits.
  • Section 1035 Exchanges
    “Certain life insurance policy or annuity exchanges that are considered, according to Internal Revenue Code section 1035, to be tax-free.”
  • Standard Risk
    “The classification of an applicant for a life insurance policy who fulfills the physical, occupational and other requirements on which most of a company’s policies are issued. Someone whose characteristics are more favorable may be classified as a ‘Preferred Risk’. When the characteristics are less favorable, the applicant may be characterized as ‘Rated’, or refused coverage all together.”
  • Sub-Standard Risk
    “Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.”
  • Surrender
    To terminate or cancel a policy for its cash value or other non forfeiture options before the maturity date.
  • Term Insurance
    Life insurance policy that does not build up cash value. The premium typically increases with the age of the insured.
  • Underwriting
    The process of evaluating applicants for insurance and classifying them fairly so the appropriate premium rates may be charged. This may involve a physical examination of the applicant.
  • Uniform Simultaneous Death Act
    “Model law that states when an insured and beneficiary die at the same time, it is presumed that the insured survived the beneficiary.”
  • Uninsurable Risk

    One not acceptable for insurance due to excessive risk.
  • Universal Life Insurance
    “A flexible premium life insurance policy under which the policy owner may change the death benefit from time to time (with evidence of insurability if increasing the death benefit), and/or vary the amount or timing of premium payments. Premiums are credited to a policy account from which mortality charges are deducted and interest is credited at rates that may change periodically.”
  • Waiver of Premium
    A rider added to the policy that will pay the premiums during the total disability of the insured.
  • Whole Life Insurance
    A basic type of permanent life insurance which can provide lifetime protection at a level premium. Premiums must generally be paid as long as the policy is in force.