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A
Accidental Death Benefit
An extra death benefit amount that is paid out in
addition to the face amount of the policy if the insured dies as the result of
an accident. It cost extra to get this benefit, and usually cannot exceed
$250,000 to $300,000, and cannot exceed more than the face amount of the policy.
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Accelerated Death Benefit Option
In the event of terminal illness, usually l year or less,
the insured has the option to withdraw some of the death benefit for his
personal use. Usually no more than 25% and usually not exceeding $250,000. This
option is usually free and is offered by some insurance companies.
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Age
Most insurance companies calculate age by using the age
you are nearest to. Example: Insured is 45 and it is January, and the insured's
birthday is in March. If the insurance company was calculating age nearest, the
insured would be considered age 46 for the purpose of calculating rates.
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Assignment
The transfer of the ownership rights of a Life Insurance
policy from one person to another.
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Aviation Hazard
The extra hazard of death or injury resulting from
participation in aeronautics. It usually does not include fare-paying passengers
in licensed aircraft. This generally will require paying extra premium or the
waiving of certain benefits of coverage.
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B
Backdating
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 lower premium. State laws often
limit to six months the time to which policies can be backdated.
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Beneficiary
The person designated to receive the death benefit when
the insured dies.
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Business Insurance
Policies written for business purposes, such as key
employee, buy-sell, business loan protection, etc.
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Buy-Sell Agreement
An agreement among owners in a business which states the
under certain conditions, i.e., disability or death, the person leaving the
business or in case of death, his heirs are legally obligated to sell their
interest to the remaining owners, and the remaining owners are legally obligated
to buy at a price fixed in the Buy-Sell agreement. The funding vehicles are
either disability or life insurance or both.
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C
Children's Term Insurance Rider
Provides term insurance to the insured's dependents.
It is a flat premium for all his dependents and the benefit usually is not less
than $1,000 or more than $10,000.
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Collateral Assignment
Assign all or part of a life insurance policy as security
for a loan. If the insured dies the creditor would receive only the amount due
on the loan.
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Conditional Binding Receipt
This is the more exact terminology for what is often
called a binding receipt. It provides that if 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. This
coverage usually has a limit until the policy is delivered and all delivery
requirements are met. 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.
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Contestable Clause
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. Example: Suicide.
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Contingent Beneficiary
A person or persons named to receive policy benefits if
the primary beneficiary is deceased at the time the benefits become payable.
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Convertible (conversion)
A policy that may be changed to another form by
contractual provision and without evidence of insurability. Most term policies
are convertible into permanent insurance.
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Credit Insurance
Insurance on a debtor in favor of a creditor to pay off
the balance due on a loan in the event of the death of the debtor.
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Cross Purchase
A form of business life insurance in which each party
purchases life insurance on each other.
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D
Decreasing Term
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. Almost never sold any more because level term insurance is so much
less expensive.
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Delivery
The actual placing of a life insurance policy in the
hands of an insured.
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Double Indemnity
Payment of twice the basic benefit in the event of loss
resulting from specified causes or under specified circumstances.
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E
Entity Agreement
A buy-sell agreement in which the company agrees to
purchase the interest of a deceased or disabled partner.
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Evidence of Insurability
The statement of information needed for the underwriting
of an insurance policy.
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Examination
The medical examination of an applicant for Life
Insurance. Examiner: A physician, nurse, or para-med appointed by the medical
director of a life insurance company to examine applicants.
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Expiry
The termination of a term life insurance policy at the
end of its period of coverage. Face: The first page of a life insurance policy.
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F
Face Amount
The amount of insurance provided by the terms of an
insurance contract, usually found on the face of the policy. In a life insurance
policy, the death benefit.
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Fixed Benefit
A benefit, the dollar amount of which does not vary. Free
Look: A period of time(usually 10, 20, or 30 days) during which a policyholder
may examine a newly issued individual life insurance policy, and surrender it in
exchange for a full refund of premium if not satisfied for any reason.
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I
Incontestable Clause
A clause in a policy providing that a policy has been in
effect for a given length of time (two or three years), the insurer shall not be
able to contest the statements contained in the application. In life policies,
if an insured lied as to the condition of his health at the time the policy was
taken out, that lie could not be used to contest payment under the policy if
death occurred after the time limit stated in the incontestable clause.
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Insurability
Acceptability to the insurer of an application for
insurance.
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Insurable Interest
You have an insurable interest in the insured if upon the
death of the insured you would suffer financial loss.
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Insurance
A formal social device for reducing risk by transferring
the risks of several individual entities to an insurer. The insurer agrees, for
a consideration, to pay for the loss in the amount specified in the contract.
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Insurance Policy
The printed form which serves as the contract between an
insurer and an insured.
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Insured
The party, who is being insured. In life insurance, it is
the person because of his or her death the insurance company would pay out a
death benefit to a designated beneficiary.
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Insurer
The company that pays out the death benefits if the
insured dies. Irrevocable Beneficiary: A beneficiary that cannot be changed
without his or her consent.
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K
Key Person (Key Man) Insurance
Insurance on the life of a key employee whose death would
cause the employer financial loss. The policy is owned and payable to the
employer.
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L
Lapsed Policy
A Insurance policy which has been allowed to expire
because of nonpayment of premiums. In a cash value life insurance policy such as
Whole Life or Universal Life the policy could expire because the cash value
account reached a zero balance and no premium payments are being made to
replenish it.
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Level Term Insurance
A type of term policy where the face value remains the
same from the effective date until the expiration date. In the context of the
policies presented by Instant Quote, it would also mean a period of time the
premiums would remain level. For example, the 5, 10, 15, 20, and lifetime term.
However, after the level premium period most policies turn into Annual Renewable
Term where the premiums increase annually.
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Life Expectancy
The average number of years remaining for a person of a
given age to live as shown on the mortality or annuity table used as a reference.
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Life Insurance
An agreement that guarantees the payment of a stated
amount of monetary benefits upon the death of the insured.
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M
Medical Information Bureau (MIB)
A data service that stores coded information on the
health histories of persons who have applied for insurance from subscribing
companies in the past. Most Life insurers subscribe to this bureau to get more
complete underwriting information.
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Mortality Charge
The charge for the element of pure insurance protection
in a life insurance policy.
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Mortality Cost
The first factor considered in life insurance premium rates. Insurers have an
idea of the probability that any person will die at any particular age; this is
the information shown on a mortality table.
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Mortality Rate
The number of deaths in a group of people, usually
expressed as deaths per thousand.
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Mortality Table
A table showing the incidence of death at specified ages.
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Mortgage Insurance
A life policy covering a mortgagor from which the
benefits are intended to pay off the balance due on a mortgage upon the death of
the insured. The best way to accomplish this is through level term life
insurance.
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N
Nonmedical (Non-Med)
A contract of life insurance underwritten on the basis of
an insured's statement of his health with no medical examination required.
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Not Taken
Policies applied for and issued but rejected by the
proposed owner and not paid for.
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O
Occupational Hazard
A condition in an occupation that increases the peril of
accident, sickness, or death. It usually will mean higher premiums.
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Ownership
All rights, benefits and privileges under life insurance
policies are controlled by their owners. Policy owners may or may not be the
insured. Ownership may be assigned or transferred by written request of current
owner.
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P
Permanent Life Insurance
A term loosely applied to Life Insurance policy forms
other than Group and Term, usually Cash Value Life Insurance, such as Whole Life
Insurance or Universal Life.
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Policy Fee
There are two calculations to determine the premium for
term insurance. The Policy Fee which is a flat fee added to each policy and the
rate per thousand times the number of thousands of death benefit. The policy fee
is usually the same for all ages and amounts.
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Preauthorized Check Plan
A premium-paying arrangement by which the policy owner
authorizes the insurer to draft money from his or her bank account for the
payments. This is usually done on a monthly basis.
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Preferred Risk
Any risk considered to be better than the standard risk
on which the premium rate was calculated. Some companies are now offering
degrees of preferred to reduce their rates even more. An extremely healthy
person can now get extraordinary low rates.
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Premium
The price of insurance protection for a specified risk
for a specified period of time.
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Primary Beneficiary
The beneficiary named as first in line to receive
proceeds or benefits from a policy when they become due.
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Provisions
Statements contained in an insurance policy which explain
the benefits, conditions and other features of the insurance contract.
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R
Rated
Coverage issued at a higher rate than standard because of
some health condition, or impairment of the insured.
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Renewable Term
Term insurance that may be renewed for another term
without evidence of insurability. Level term usually turns into renewable term
with increasing premiums after the level premium period.
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Replacement
A new policy written to take the place of one currently
in force.
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Revocable Beneficiary
The beneficiary in a life insurance policy in which the
owner reserves the right to revoke or change the beneficiary. Most policies are
written with a revocable beneficiary. Rider: An attachment to a policy that
modifies its conditions by expanding or restricting benefits or excluding
certain conditions from coverage.
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S
Standard Risk
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 loading or restrictions because of health. At one time
the best class of risk was the standard class. As the insurers improved their
underwriting skills, they were able to define those in very good health and
offer them better rates with the new preferred class. Now some insurers have
even developed different levels of preferred.
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Stock Purchase Agreement
A formal buy-sell agreement whereby each stockholder is
bound by the agreement to purchase the shares of a deceased stockholder and the
heirs are obligated to sell. This agreement is usually funded with life
insurance.
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Stock Redemption Agreement
A formal buy-sell agreement whereby the corporation is
bound by the agreement to purchase the shares of a deceased stockholder and the
heirs are obliged to sell. This agreement is usually funded with life insurance.
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T
Term Insurance
The type of life insurance that provides protection for a
specified period of time. It usually has no real cash build up.
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U
Underwriter
A technician trained in evaluating risks and determining
rates and coverage for them. When an application is submitted to the insurer, it
is the underwriter who gathers all the necessary information to determine
whether a person is a preferred risk, a standard risk, or rated.
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Underwriting
It is what the underwriter does to determine the class of
risk an applicant will be placed in
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Universal Life
An interest sensitive life insurance policy that builds
cash values. The premium payer has control on how the policy is structured. He
has the flexibility to vanish the premiums (pay no more premiums based on
assumptions that are not guaranteed) or have the premiums continue for life. It
is a matter of juggling 3 variables. The assumed interest rate, the cash value
and the premium payment plan. The policy is interest sensitive , and if interest
rates change from the assumed interest, it will effect the other two variables.
In the past, many Universal Life Policies were structured assuming a higher
interest rate then was actually received, therefore, most of them have under
performed. If you have a Universal Life Policy, you should have it evaluated to
see if it needs to have the premiums adjusted to get it back on track. A fourth
variable that has not been a factor but could be in the future, and the owner
should be aware of, is the Mortality variable. Universal Life policies are
usually structured assuming current mortality rates. The insurance companies
reserve the right to change those rates. To my knowledge this has never been
done
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W
Waiver of Premium
A provision of a life insurance policy which continues
the coverage without further premium payments if the insured becomes totally
disabled.
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Whole Life Insurance
Life insurance that is kept in force for a person's whole
life as long as the scheduled premiums are maintained. All Whole Life policies
build up cash values. Most Whole Life policies are guaranteed as long as the
scheduled premiums are maintained. The variable in a whole life policy is the
dividend which could vary depending on how well the insurance is doing. If the
company is doing well and the policies are not experiencing a higher mortality
than projected, premiums are paid back to the policyholder in the form of
dividends. Policyholders can use the cash from dividends in many ways. The three
main uses are: It can be used to lower or vanish premiums, it can be used to
purchase more insurance or it can be used to pay for term insurance.
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