Life Insurance Glossary

A | B | C | D | E | F | I| K | L | M | N | O | P | R | S | T | U | W

A

Accelerated Death Benefit Option
A rider offered by some companies that allows for the early payment of a portion of the policy‘s face amount should the insured suffer from a terminal illness or injury. Typically, the insured would be diagnosed with one year or less to live. This is a free option. The portion is usually 25 % of the face amount with a cap at $250,000
Accidental Death Benefit Rider
An extra death benefit amount paid out in addition to the face amount of the policy if the insured dies as the result of an accident. There is an extra charge for this benefit. and it cannot exceed the face amount of the policy.
Age
Most insurance companies calculate age by using “age nearest.” Example: Insured is 45 and it is January, and the insured’s birthday is in March. The insurance company calculates age nearest to be age 46 for the purpose of calculating rates.
Assignment
The transfer of the ownership rights of a life insurance policy from one person to another. The insured must request the transfer.
Aviation Hazard
The extra hazard of death or injury resulting from participation in aeronautics. It does not usually include fare-paying passengers in licensed aircraft. An extra premium may be required for aviation coverage.
Aviation Exclusion
This excludes from coverage certain deaths due to aviation.

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B

Backdating
The practice of making the effective date of a policy earlier than the present Some states may limit backdating to six months. Backdating is often used to make the age at issue lower than it actually was in order to get lower premium.
Beneficiary
The person to whom the proceeds of a life insurance policy are payable upon the death of the insured.
Business Insurance
Policies written for business purposes, such as key employee, buy-sell, business loan protection, etc.
Buy-Sell Agreement
An agreement among owners in a business which states that a deceased owner’s interest in a business will be sold at a predetermined price. The remaining owners are legally obligated to buy at a price fixed in the Buy-Sell agreement. May also include an owner’s disability. The funding vehicles are either disability or life insurance policies or a combination of 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; the benefit usually is not less than $1,000 or more than $10,000. May also be called dependent child rider.
Collateral Assignment
Assignment of all or part of a life insurance policy as security for a loan. If the insured dies the creditor is only entitled to the balance of the loan.
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.
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.
Contingent Beneficiary
A person or persons named to receive policy benefits if the primary beneficiary is deceased at the time the benefits become payable.
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.
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.
Cross Purchase
A form of business life insurance in which each party purchases life insurance on the other(s).

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D

Decreasing Term
A form of life insurance in which the death benefit which declines throughout the term of the contract, reaching zero at the end of the term. Rarely sold at this time because level term insurance is so much less expensive.
Delivery
The actual placing of a life insurance policy in the hands of an insured.
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 thereby increasing proportionately the interests of the surviving owners.
Evidence of Insurability
Any statement or proof of a proposed insured’s health, occupation or activities for the underwriting of an insurance policy.
Examination
The medical examination of an applicant for life insurance. Examination may be done by a physician, nurse or paramedical professional appointed by the medical director of a company.
Expiry
The termination of a term life insurance policy at the end of its period of coverage.

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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.
Fixed Benefit
A benefit, the dollar amount of which does not vary.
Free Look
The period of time a policy holder has to look over the policy without any obligation may be 10, 20, or 30 days.

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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.
Insurability
Acceptability to the insurer of an application for insurance.
Insurable Interest
Refers to the relationship between the insured and the beneficiary in a policy. There must be a monetary loss to the beneficiary in the event of the insured‘s death.
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.
Insurance Policy
The written contract between the insurer and the insured.
Insured
The party who is being insured.
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. This is typically owned by and payable to the employer.

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L

Lapsed Policy
An insurance policy which has been allowed to expire because of nonpayment of premiums.
Level Term Insurance
A type of term policy where the face value remains the same from the effective date until the expiration date. After the level premium period, most policies turn into annual renewable term with premiums increasing annually.
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.
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 collects and stores coded medical information on persons who have applied for insurance from subscribing companies in the past.
Mortality Charge
The charge for the element of pure insurance protection in a life insurance policy.
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.

Mortality Rate
The number of deaths in a group of people, usually expressed as deaths per thousand.
Mortality Table
A table showing the incidence of death at specified ages.
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.

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N

Non-medical Insurance
A contract of life insurance underwritten on the basis of an insured’s statement of health with no medical examination required.
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.
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 or universal life insurance.
Policy Fee
The policy fee is a flat fee added to each policy The policy fee is usually the same for all ages and amounts.
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.
Preferred Risk
Any risk considered to be better than the standard risk on which the premium rate was calculated. Many companies offer degrees of preferred to reduce rates even more.
Premium
The price of insurance protection.
Primary Beneficiary
The beneficiary named as first in line to receive proceeds or benefits from a policy.
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.
Renewable Term
Term insurance that may be renewed for another term without evidence of insurability.
Replacement Policy
A new policy written to take the place of one currently in force.
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 lifestyles. An average risk, not subject to rate loading or restrictions because of health.
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.
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.

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T

Term Insurance
The type of life insurance that provides protection for a specified period of time (or term). There is usually no cash value build up in this type of policy.

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U

Underwriter
A technician trained in evaluating risks and determining rates and coverage for them. Upon application to an insurer, the underwriter gathers the necessary information to determine if the applicant is a preferred, standard or a rated risk.
Underwriting
The process of determining the class of risk an applicant will be placed in.
Universal Life
An interest sensitive life insurance policy that builds cash values. The premium payer has control of policy structure 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.

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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.
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. The variable in a whole life policy is the dividend which varies according to how the insurance is doing.

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