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INSURANCE 101

Glossary of Terms

accelerated benefits

AKA “living benefits.” This rider allows you, under certain circumstances, to receive some, or all, of the life insurance death benefit before you die. Becoming terminally ill, critically ill or chronically ill (i.e. the need for long-term care, or confinement to a nursing home.)

annuitant

(1) The designated person who is to receive payments. (2) The person whose lifetime is used to determine how long benefits are payable under a life annuity.

annuity

A contract that provides for a series of payments to be made or received at regular intervals. There are many kinds of annuities. The most common are immediate and deferred annuities, either of which can be a fixed, indexed or variable in nature.

assignee

The party to whom all or certain contractual rights are transferred under an absolute or collateral assignment.

attained age

The current age of the insured.

beneficiary

The person or other party designated to receive the proceeds by the owner of the insurance policy.

broker

An insurance agent who sells insurance products for more than one insurance company.

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, enables the purchase of business interest of a deceased or disabled partner or stockholder.

cash value

Referring to the cash amount value of a life insurance policy.  It is the amount of money  that the policy owner will receive if the policy owner 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 participating whole life and universal life.

claimant

The person or party making a formal request for payment of benefits due under the terms of an insurance contract.

collateral assignment

A transfer of some ownership rights in a contract from one party to another, generally for a temporary period. Insurance policies are often assigned as collateral for a loan, in which case all transferred rights revert to the assignor when the loan is repaid.

conditional premium receipt

A receipt given when the applicant pays the initial premium and under which life insurance will become effective before a policy is issued only if the proposed insured is found to be insurable. Also called a conditional receipt.

contestable period

The period of time (typically two years) when an insurer may challenge the validity of a life insurance policy.

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.

death claim

A request for payment under the terms of a life insurance policy.

disability income insurance

A type of health insurance designed to compensate insured people for a portion of the income they lose because of a disabling injury or illness. Generally, benefits for disability income insurance are provided for the disabled person in the form of monthly payments.

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 protect the prospect’s financial assets.. Estate planning often involves a team of accountants, lawyers, and the trust officers of banks, as well as insurance agents.

face amount

The dollar amount stated as payable at the death of the insured or (in the case of an annuity) at the maturity of the contract.The face value is represented on the first page of the contract.

guaranteed insurability (GI) rider

An amendment to a life insurance policy that gives the policy owner the right to purchase additional insurance of the same type as provided in the original policy. The additional insurance can equal no more than an amount specified in the policy contract and can be purchased at specified premium rates and at specified times without new evidence of insurability.

guaranteed-issue insurance

Insurance coverage for which there is usually no individual underwriting. All eligible members of a particular group of proposed insureds who apply for the policy and who meet certain conditions are automatically issued a policy.

key-person insurance

Life insurance purchased by a business on the life of a person (usually an employee) whose contributions to the company are essential.  Insuring key people allows the company to continue should a key person die or become disabled.

lapse

The termination of an insurance policy which occurs if premium payments are neglected or not up to date.

life insurance

Insurance that provides protection against the financial loss experienced by a person’s death or disability.

long-term care (LTC) insurance

Coverage available on an individual or group basis to provide home or hospital care when they are unable to perform certain basic life tasks.  

mortality charge

The cost of the insurance protection element of a universal life policy. This cost is based on the net amount at risk under the policy, the insured’s risk classification at the time of policy purchase, and the insured’s current age.

mutual insurance company

An insurance company owned by policy owners rather than stockholders.

needs analysis

Part of the fact-finding stage in the personal selling process; the process of developing a detailed personal and financial picture of a prospect in order to evaluate his or her insurance needs.

net amount at risk

The death benefit of a life insurance policy minus the policy’s reserve at the end of the policy year.

nonmedical application

An application for insurance in which the proposed insured is not required to undergo a medical examination. However, a nonmedical application does contain questions that the proposed insured must answer about his or her health.

nonmedical supplement

A report that describes the proposed insured’s health history. A nonmedical supplement is completed by the agent based on information provided by the proposed insured and can serve as part of a nonmedical application. Also called a nonmedical declaration.

non-tobacco 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.

paid-up policy

An insurance policy that will provide benefits in the future but that requires no further premium payments.

paramedical report

A report based on a physical examination and a medical history completed by a medical technician, a physician’s assistant, or a nurse, rather than a physician. A paramedical report describes the health of a proposed insured and can serve as part of an insurance application.

policy

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

policy loan

A loan that is made to a life insurance policy owner by an insurer. A policy loan is secured by a policy’s cash value and cannot exceed the cash value. When the policy benefits are paid, the amount of any outstanding policy loan made against the policy is deducted from the benefits.

policy owner

The person or party who owns an individual insurance policy. The policy owner is not necessarily the person whose life is insured.

primary beneficiary

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

rider

An amendment to an insurance policy that becomes a part of the insurance contract and expands or limits the benefits payable. Also called an endorsement.

stock insurance company

An insurance company that is owned by people who buy shares of the company’s stock.

term insurance

Life insurance under which the benefit is payable only if the insured dies during a specified period.

underwriting

The process of assessing and classifying the potential degree of risk that a proposed insured represents.

universal life insurance

A type of permanent life insurance with an investment saving vehicle.  

waiver of premium for disability (WP) benefit

A rider or a policy provision under which the insurer promises to give up its right to collect the policy’s premium if the policy owner becomes unable to work because of an accident or injury. The waiver of premium for disability benefit remains in effect as long as the policy owner is disabled.

whole life insurance

Life insurance that remains in force during the insured’s entire lifetime, provided premiums are paid as specified in the policy.