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American
Council of Life Insurance
Life Insurance and Pension Glossary
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accelerated
benefits
Benefits
available in some life insurance policies before death, usually
triggered by long-term, catastrophic or terminal illness. Also known
as living benefits.
accidental
death benefits
A
provision added to a life insurance policy for payment of an additional
benefit in case of death that results from an accident. This provision
is often called "double indemnity."
accumulation
period
The
time during which a person pays money into an annuity contract and
builds up a fund to provide a deferred annuity.
actuary
Someone
professionally trained in the technical aspects of insurance and
related fields, particularly in the mathematics of insurance (the
calculation of premiums, reserves and other values).
adjustable
life insurance
A
type of insurance that allows the policyholder to change the plan
of insurance, raise or lower the face amount of the policy, increase
or decrease the premium and lengthen or shorten the protection period.
agent
An
authorized representative of an insurance company who sells and
services insurance contracts
annuitant
The
person entitled to receive annuity payments or who now receives
them.
annuity
A
contract that provides for a series of payments, usually at regular
intervals, for life or for a specified time.
annuity certain
A
contract that provides an income for a specified number of years,
regardless of life or death.
annuity consideration
The
payment, or one of the regular periodic payments, an annuitant makes
for an annuity.
application
A
statement of information made by someone applying for life insurance.
The information gathered helps the life insurance company assess
whether the risk presented by the applicant is acceptable.
assignment
The
legal transfer of one person’s interest in an insurance policy
to another person.
automatic
premium loan
A
provision in a life insurance policy that any premium not paid by
the end of the grace period (usually 31 days) is automatically paid
by a policy loan if there is sufficient cash value.
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beneficiary
The person
or financial instrument (for example, a trust fund), named in the
policy as the recipient of insurance money in the event of the policyholder’s
death.
broker
A sales
and service representative who handles insurance for clients, generally
selling insurance of various kinds and for several companies.
business
life insurance
Life insurance
purchased by a business enterprise on the life of a member of the
firm. It is often bought by partnerships to protect the surviving
partners against loss caused by the death of a partner, or by a
corporation to reimburse it for loss caused by the death of a key
employee.(Also known as key person insurance.)
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cash value
The amount
available in cash upon surrender of a policy before it becomes payable
upon death or maturity. Cash on builds up in certain policies where
a larger premium is paid so that there is excess cash value during
the life of the policy. This excess cash may be used to offset future
premiums or simply to hold premiums level over a certain period
of time.
certificate
A statement
issued to individuals insured under a group policy, setting forth
the essential provisions relating to their coverage.
claim
Notification
to an insurance company that payment of an amount is due under the
terms of the policy.
combination
plans
Life insurance
policies that combine features of term and whole life policies.
convertible
term insurance
Term insurance
that offers the policyholder the option of exchanging it for a permanent
plan of insurance without evidence of insurability.
cost index
A way
to compare the costs of similar plans of life insurance. A policy
with a smaller index number is generally a better buy than a comparable
policy with a larger index number.
cost-of-living
rider
An option
that permits the policyholder to purchase increasing term insurance
coverage. The death proceeds increase by a stated amount each year
to coincide with an estimated increase in the cost of living.
credit life
insurance
Term life
insurance issued through a lender or lending agency to cover payment
of a loan, installment purchase or other obligation, in case of
death.
current assumption
whole life insurance
A variation
of universal life insurance, this product involves fixed premiums
and fixed death benefits. Its cash value growth depends on market
conditions. If they are favorable and if premiums paid in the policy’s
first year are large enough, premiums for one or more years may
be reduced to zero.
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declination
The rejection
by a life insurance company of an application for life insurance,
usually for reasons of health or occupation.
deferred
annuity
An annuity
that holds the money for a period of time at specified interest
rates and begins annuity payments at some future date.
deferred
group annuity
A type
of group annuity providing for the purchase each year of a paid-up
deferred annuity for each member of the group, the total amount
received by the member at retirement being the sum of these deferred
annuities.
deposit administration
group annuity
A type
of group annuity providing for the accumulation of contributions
in an undivided fund out of which annuities are purchased as the
members of the group retire.
deposit term
insurance
A form
of term insurance, not really involving a "deposit," in
which the first-year premium is larger than subsequent premiums.
Typically, a partial endowment is paid at the end of the term period.
In many cases the partial endowment can be applied toward the purchase
of a new term policy or, perhaps, a whole life policy.
disability
benefit
A feature
added to some life insurance policies providing for waiver of premium,
and sometimes payment of monthly income, if the policyholder becomes
totally and permanently disabled.
dividend
An amount
of money returned to the holder of a participating policy. The money
is a partial refund of the premium paid. It results from actual
mortality, interest and expenses that were more favorable than expected
when the premiums were set.
dividend
addition
An amount
of paid up insurance purchased with a policy dividend and added
to the face amount of the policy.
dual life
insurance
Another
name for second-to-die insurance.
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endowment
Life insurance
payable to the policyholder if living, on the maturity date stated
in the policy, or to a beneficiary if the insured dies before that
date.
expectation
of life
See life expectancy.
extended
term insurance
A form
of insurance available as a non-forfeiture option. It provides the
original amount of insurance for a limited period of time.
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face amount
The amount
stated on the face of the insurance policy that will be paid in
case of death or at maturity. It does not include dividend additions
or additional amounts payable under accidental death or other special
provisions.
family policy
A life
insurance policy providing insurance on all or several family members
in one contract, generally whole life insurance on the principal
breadwinner and small amounts of term insurance on the other spouse
and children, including those born after the policy is issued.
FIXED ANNUITY
An annuity
that guarantees the annuitant a fixed amount of money for a specific
amount of time.
flexible
premium deferred annuity
An annuity
contract that permits varying premium payments from year to year
and is often used for individual retirement accounts.
flexible
premium policy or annuity
A life
insurance policy or annuity under which the policyholder or contract
holder may vary the amounts or timing of premium payments.
flexible
premium variable life insurance
A life
insurance policy that combines the premium flexibility feature of
universal life insurance with the equity-based benefit feature of
variable life insurance.
fraternal
life insurance
Life insurance
provided by fraternal orders or societies to their members.
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grace period
A period
(usually 31 days) following each premium due date, other than the
first due date, during which an overdue premium may be paid. All
provisions of the policy remain in force throughout this period.
group annuity
A pension
plan providing annuities at retirement to a group of people under
a master contract. It is usually issued to an employer for the benefit
of employees. The individual members of the group hold certificates
as evidence of their annuities.
group life
insurance
Life insurance
that usually does not require medical examinations, on a group of
people under a master policy. It is typically issued to an employer
for the benefit of employees, or to members of an association, for
example, a professional membership group. The individual members
of the group hold certificates as evidence of their insurance.
guaranteed
insurability
An option
that permits the policyholder to buy additional stated amounts of
life insurance at stated times in the future without evidence of
insurability.
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individual
policy pension trust
A
type of pension plan, frequently used for small groups, administered
by trustees who are authorized to purchase individual level premium
policies or annuity contracts for each member of the plan. The policies
usually provide both life insurance and retirement benefits.
individual
retirement account (IRA)
An
account set up by an individual that in some cases allows contributions
to be deducted from income and permits earnings on contributions
to accumulate tax-deferred until retirement, regardless of whether
the contributions are deductible. Under the 1986 tax law, only those
who do not participate in a pension plan at work or who do participate
and meet certain income guidelines can make tax-deductible contributions
to an IRA. All others can make contributions to an IRA on a non-deductible
basis.
industrial
life insurance
Life
insurance issued in small amounts, usually less than $1,000, with
premiums payable on a weekly or monthly basis. The premiums are
generally collected at the home by an agent of the company. Sometimes
referred to as debit insurance.
insurability
Acceptability
to the company of an applicant for insurance.
insurance
examiner
The
representative of a state insurance department assigned to participate
in the official audit and examination of the affairs of an insurance
company.
insurance
trust
This
type trust is used to hold an insurance policy for the beneficiary.
A policy held by such a trust may be styled in such a manner as
to remove the policy from the insured estate and pass it to the
beneficiaries tax free.
insured
The person
on whose life the policy is issued.
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JOINT AND
SURVIVOR ANNUITY
An annuity
that guarantees payments for two people where the first person gets
payments for a lifetime and the second person gets payments either
for a lifetime or for some period of time.
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Keogh plan
A type
of tax-favored retirement plan for self-employed people.
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lapsed policy
A policy
terminated at the end of the grace period because of non-payment
of premiums.
legal reserve
life insurance company
A life
insurance company operating under state insurance laws specifying
the minimum basis for the reserves the company must maintain on
its policies.
level premium
insurance
Insurance
for which the cost is distributed evenly over the premium payment
period. The premium remains the same from year to year and is more
than the actual cost of protection in the earlier years of the policy
and less than the actual cost in the later years. The excess paid
in the early years builds up a reserve to cover the higher cost
in the later years.
life annuity
A contract
that provides an income for annuitant’s life.
life
expectancy
The
average number of years of life remaining for a group of people
of a given age according to a particular mortality table.
life insurance
in force
The
sum of the face amounts, plus dividend additions, of life insurance
policies outstanding at a given time. Additional amounts payable
under accidental death or other special provisions are not included.
limited payment
life insurance
Whole
life insurance on which premiums are payable for a specified number
of years or until death, if death occurs before the end of the specified
period.
living benefits
Another
name for accelerated death benefits.
load
Any
sales fees or charges paid in purchasing an annuity contract.
loan value
The
amount that is available for loans from the policy. Generally this
is an amount near or equal to the cash value.
LUMP SUM
ANNUITY
An
annuitant is paid all his money at one time.
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master policy
A policy
that is issued to an employer or trustee, establishing a group insurance
plan for designated members of an eligible group.
modified
life insurance
A type
of whole life policy with a premium that is relatively low in the
first several years but that increases in later years.
mortality
table
A statistical
table showing the death rate (probability of death) at each age.
mutual life
insurance company
A life
insurance company owned by policyholders who share in the company’s
surplus earnings.
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non-forfeiture
option
One of
the choices available if the policyholder discontinues payments
on a policy with a cash value. This may be taken in cash as extended
ten-n insurance or as reduced paid-up insurance.
non-forfeiture
values
The value
of the policy if canceled, either in cash or in another form of
insurance. Also available to the policyholder if required premium
payments are not paid.
non-medical
limit
The maximum
face value of a policy that a given company will issue without the
applicant taking a medical examination.
non-participating
insurance
Insurance
on which no dividends are paid.
non-participating
policy
A life
insurance policy in which the company does not distribute to policyholders
any part of its surplus. Note that premiums for non-participating
policies are usually lower than for comparable participating policies.
Note also that some non-participating policies have both a maximum
premium and a current lower premium. The current premium reflects
anticipated experience that is more favorable than the company is
willing to guarantee, and it may be changed from time to time for
the entire block of business to which the policy belongs.
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ordinary life
insurance
Life insurance
usually issued in amounts of $1,000 or more with premiums payable
on an annual, semi-annual, quarterly or monthly basis.
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paid-up insurance
Insurance
on which all required premiums have been paid.
participating
insurance
Insurance
on which the policyholder is entitled to share in the surplus earnings
of the company through policy dividends that reflect the difference
between the premium charged and the cost to the company of providing
the insurance.
payout period
The period
during which you receive the income from your annuity contract.
permanent
life insurance
A phrase
used to cover any form of life insurance except term; generally
insurance that accrues cash value, such as whole life or endowment.
policy
The printed
document issued to the policyholder by the company stating the terms
of the insurance contract.
policy loan
Under
an insurance policy, the amount that can be borrowed at a specified
rate of interest from the issuing company by the policyholder, who
uses the value of the policy as collateral for the loan. In the
event the policyholder dies with the debt partially or fully unpaid,
the insurance company deducts the amount borrowed, plus any accumulated
interest, from the amount payable.
policy reserves
The measure
of the funds that a life insurance company holds specifically for
fulfillment of its policy obligations. Reserves are required by
law to be calculated so that, together with future premium payments
and anticipated interest earnings, they will enable the company
to pay all future claims.
policyholder
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 partnership or a
corporation.
premium
The payment,
or one of the regular periodic payments, that a policyholder makes
to own an insurance policy.
premium loan
A policy
loan made for the purpose of paying premiums.
principal
The amount
you pay into your annuity contract as distinguished from the interest
that is credited to it.
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qualified
annuity
An
annuity that is sold as part of a tax-qualified Keogh plan or company
pension plan.
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rated policy
Sometimes
called an "extra-risk" policy, an insurance policy issued
at a higher-than-standard premium rate to cover the extra risk where,
for example, an insured has impaired health or a hazardous occupation.
reduced paid-up
insurance
A form
of insurance available as a non-forfeiture option. It provides for
continuation of the original insurance plan but for a reduced amount.
REFUND ANNUITY
When the
owner of the annuity dies before receiving all the money due him,
his beneficiary will receive the remainder.
reinstatement
The restoration
of a lapsed policy to full force and effect. The company requires
evidence of insurability and payment of past due premiums plus interest.
renewable
term insurance
Term insurance
providing the right to renew at the end of the term for another
term or terms, without evidence of insurability. The premium rates
increase at each renewal as the age of the insured increases.
reserve
The amount
required to be carried as a liability in the financial statement
of an insurer to provide for future commitments under policies outstanding.
rider
An amendment
to an insurance policy that modifies the policy by expanding or
restricting its benefits or excluding certain conditions from coverage.
risk classification
The process
by which a company decides how its premium rates for life insurance
should differ according to the risk characteristics of individuals
insured (for example, age, occupation, sex, state of health) and
then applies the resulting rules to individual applications. (See
underwriting.)
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second-to-die
life insurance
A form
of insurance, traditionally used as an estate planning tool, that
pays a death benefit only upon the death of the insured who survives
the longest. Its main purpose is to pay estate taxes upon the death
of the second insured. Because it is based on joint life expectancy,
its premium is less than the total premiums for individual policies
on the same lives. This type of insurance is available in many forms,
including policies with interest-rate features and flexible premiums.
separate
account
An asset
account established by a life insurance company separate from other
funds, used primarily for pension plans and variable life products.
This arrangement permits wider latitude in the choice of investments,
particularly in equities.
settlement
options
One of
several ways, other than immediate payment in a lump sum, in which
the insured or beneficiary may choose to have policy proceeds paid.
These may be installments of equal or varying amounts over time
or payments over lifetime.
single-premium
whole life insurance
A whole life policy that provides protection for the duration of
the insured’s life in exchange for the payment of the total
premium in one lump sum at the time of application.
stock life
insurance company
A life
insurance company owned by stockholders who share in the company’s
surplus earnings.
straight
life annuity
An annuity
whose periodic payments stop when the annuitant dies.
straight
life insurance
Whole
life insurance on which premiums are payable for life.
supplementary
contract
An agreement
between a life insurance company and a policyholder or beneficiary
by which the company retains the cash sum payable under an insurance
policy and makes payments in accordance with the settlement option
chosen.
survivorship
insurance
Another
name for second-to-die insurance.
surrender
value
This is
the term used for the value of the policy at the time of surrender.
This could be the cash value, but may also be an amount equal to
the cash value reduced by any loans or prior withdrawals made to
the policy.
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term insurance
A plan
of insurance that covers the insured for only a certain period of
time (term), not for his or her entire life. The policy pays death
benefits only if the insured dies during the term.
term rider
Term insurance
that is added to a whole life policy at the time of purchase or
that may be added in the future.
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underwriting
The process
of classifying applicants for insurance by identifying such characteristics
as age, sex, health, occupation and hobbies. People with similar
characteristics are grouped together and are charged a premium based
on the group’s level of risk. The process includes rejection
of unacceptable risks.
universal
life insurance
A flexible
premium life insurance policy under which the policyholder may change
the death benefit from time to time (with satisfactory evidence
of insurability for increases) and vary the amount or timing of
premium payments. Premiums (less expense charges) are credited to
a policy account from which mortality charges are deducted and to
which interest is credited at varying rates.
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variable
annuity
An annuity
contract under which the monthly payments will vary because they
are linked to the values of investments, such as common stocks.
This contrasts with the fixed dollar annuity, which guarantees a
fixed amount monthly.
variable
life insurance
Life insurance
under which the benefits relate to the value of assets behind the
contract at the time the benefit is paid. The assets fluctuate according
to the investment experience of funds managed by the life insurance
company. Premium payments may be fixed as to timing and amount (scheduled
premium variable life) or subject to change by the policyholder
(flexible premium variable life).
Because variable
life policies have investment features, life insurance agents selling
these policies must be registered representatives of a broker-dealer
licensed by the National Association of Securities Dealers and registered
with the Securities and Exchange Commission.
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waiver of
premium
A provision
that sets certain conditions under which an insurance policy will
be kept in full force by the company without the payment of premiums.
It is used most frequently for those policyholders who become totally
and permanently disabled but may be available in certain other cases.
whole life
insurance
A
plan of insurance for life, with premiums payable for a person’s
entire life.
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SOURCES:
American Council of Life Insurance, Insurance Information
Institute, Insurance News Network, and The Bruemmer Firm,
Hot Springs, Arkansas
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