Health, Life, And Disability Insurance Terms

Front 1

Beneficiary

Back 1

the person or persons designated to receive benefits from an insurance policy or annuity.

Front 2

Annuities

Back 2

a cash contract between a person (the annuity owner) and a life insurance company (the annuity issuer). The annuity is set up to accommodate and/or distribute a sum of money.

Front 3

Risk

Back 3

the chance of loss

Front 4

Loss

Back 4

an unwelcome and unplanned reduction in economic value.

Front 5

Hazard

Back 5

a condition that increases the number of or the severity of losses.

Front 6

Pure risk

Back 6

involves only the chance of a loss, and no gain, to the person assuming the risk. Pure risk includes: untimely death, and serious illness or disability of a person. Only pure risk is insurable (though not every pure risk is insurable).

Front 7

Speculative risk

Back 7

is uninsurable, can result in loss or gain. Examples of speculative risk include gambling and investing in the stock market.

Front 8

Exposure

Back 8

the state of being subject to a possible loss.

Front 9

Premium

Back 9

the charge to the policy owner for the risk the insurance contract covers. The greater the risk, the higher the premium.

Front 10

Peril

Back 10

a condition that involves danger or risk and is the cause of a loss. Example: death, disability, and accidental injuries and sickness.

Front 11

Risk avoidance

Back 11

one of the ways we manage risk.

Front 12

Risk reduction

Back 12

taking measures to reduce a certain risk; reducing a risk does not remove the possibility of suffering a financial loss.

Front 13

Risk retention

Back 13

choosing to use existing assets to pay for any losses if the risk becomes a reality; also known as the “do nothing” option.

Front 14

Deductible

Back 14

a stated sum of money that the insured must pay before any major medical policy benefits are paid.

Front 15

Risk sharing

Back 15

one of the oldest ways to manage risks; similar to buying insurance in that a part of the risk is transferred to the others.

Front 16

Risk transfer

Back 16

an individual or business transfers the risk of loss to an insurance company in return for a premium.

Front 17

Insurable risk

Back 17

an applicant is an insurable risk to the insurer if he/she meets certain criteria for insurability; if these criteria are met, then the applicant is insurable.

Front 18

Underwriting

Back 18

the process that determines if the risk proposed for insurance should be accepted or rejected.

Front 19

Law of large numbers

Back 19

a method of predicting future losses with great accuracy. It is based on the principle that the greater the number of incidents of a random process, the more the expected number of incidents and the actual numbers of incidents tend to become the same. It is the mathematical principle of probability on which insurance rests.

Front 20

Adverse selection

Back 20

the tendency of those who most need insurance (most at risk) to by insurance. Those who don’t have as much of a need for a particular type of insurance (least at risk) are less likely to buy it.

Front 21

Stock insurance companies

Back 21

owned by stockholders, these companies pay dividends, when declared, to their stockholders

Front 22

Mutual insurance companies

Back 22

owned by policyowner; mutual companies have no stockholders.

Front 23

Policy dividends

Back 23

amount returned to the owner of a participating insurance policy out of an insurance company’s surplus funds.

Front 24

PPO

Back 24

a managed care arrangement made up of a network of health care providers. This group contracts with a sponsoring organization, an employer, an insurer, or a third party administrator toprovide health care services. These services are offered at negotiated reduced fees to the sponsoring organization’s members or employees.

Front 25

Fraternal benefit society

Back 25

an organization composed of individuals who typically share a common ethnic or religious affiliation.

Front 26

Fraternal insurers

Back 26

mainly life insurance providers whose insureds are also members of lodges or fraternal organizations.

Front 27

Ordinary life insurance

Back 27

a class of individual life insurance that offers individual coverage in a variety of term (temporary) or permanent plans, in any face amount.

Front 28

Face amounts

Back 28

the amount of the death benefit stated in a life insurance policy. In a universal life policy, the face amount is called the “specified amount.”

Front 29

Lloyd’s of London

Back 29

an insurance market; if provides: a meeting place for transacting insurance business; underwriting information; a forum for settling disputes and claims, and other regulatory and administrative services.

Front 30

Risk purchasing group

Back 30

persons or entities with similar risks who form an organization for the purpose of buying insurance on a group basis .These persons are usually members of a similar business or trade.

Front 31

Surplus lines insurance

Back 31

a specialized insurance coverage that is offered when either of these condition arises: (1) a risk or part of a risk is identified for which there is no market available through the original or producing agent; or (2) a state bars the sale of a specific type of coverage or otherwise prevents insurance companies from providing coverage for a particular risk or restricts them from charging adequate rate.

Front 32

Reinsurance

Back 32

an insurer (ceding company) that sells insurance to the public enters into an agreement with another insurance company (reinsurance company) to accept some of its risk. The insurer accepting some of the risk being transferred is known as the reinsurance company.

Front 33

OASDI

Back 33

old age, survivors, and disability insurance program. Provides monthly benefits to qualified retired and disabled workers and their dependents, and to survivors of insured works. Eligibility and benefit amounts are determined by the worker’s contributions to Social Security.

Front 34

Medicare

Back 34

a federal health insurance program designed specifically for people age 65 and over and for certain disable persons. Medicare is funded by payroll taxes. It extends the Social Security program beyond the retirement, disability, and survivor benefits into the field of medical expense benefits. Coverage provided under Medicare is divided into four parts: A through D.

Front 35

Medicaid

Back 35

a program funded by state and federal funds and administered by the states. This program pays for healthcare for the financially needy, regardless of age.

Front 36

Workers’ compensation

Back 36

state administered program that protects people who are injured or become sick on the job.

Front 37

Admitted insurer

Back 37

a company that has received a certificate of authority from the state. This certificate permits the company to transact insurance within the state. It certifies that the company has met the state’s requirements for conduction the business of insurance. Admitted insurers are also called “authorized insurers.”

Front 38

Domestic

Back 38

the insurance company’s domicile (home office) is its state of incorporation. Insurers doing business in the state in which they are domiciled.

Front 39

Foreign

Back 39

any company that does business in a state other then the one in which it is domiciled.

Front 40

Alien

Back 40

a company that is incorporated in a country outside the United States and is doing business in the United States.

Front 41

Career (or captive) agency system

Back 41

the agency system under which the agent is employed by one insurance company. The agent works at a branch of that company under the supervision of a general agent. The agent receives 50% or more in commissions as compensation for an initial sale, and an additional reduced commission at the time of each yearly renewal.

Front 42

Managerial System

Back 42

one of three distribution systems to bring an insurer’s policies to market; in a managerial system, the agency head is an employee of the insurer. The insurer is responsible for agency expenses and staffing.

Front 43

General agency system

Back 43

one of three distribution systems to bring an insurer’s policies to market; in a general agency system, the agency head is an independent contractor. The contractor is responsible for agency expenses and staffing, and is not an employee of the insurer.

Front 44

Independent agency system

Back 44

the agency is not affiliated with any single insurer and in fact represents multiple companies. Managers of independent agents, sometimes called personal producing general agents (PPGAs), are solely responsible for hiring, dismissing, and managing producers (brokers).

Front 45

Direct response system

Back 45

through mass market advertising such as mail, TV, internet, or phone, insurers market and sell directly to consumers, without the use of sales representatives.

Front 46

Agents

Back 46

anyone who sells insurance for another and gets a policy from the insurer; also called a producer.

Front 47

Brokers

Back 47

a representative of the applicant rather than of the insurer.

Front 48

Producer

Back 48

anyone who sells insurance for another and gets a policy from the insurer; also called an agent.

Front 49

Common law

Back 49

the unwritten law based on the customs, ideas, and judicial decisions that existed in England at the time of the American Revolution; became the basis of the American legal system.

Front 50

Principal

Back 50

the party on whose behalf the agent acts.

Front 51

Career (or captive) agency system

Back 51

the agent is employed by one insurance company. The agent works at a branch of the company, under the supervision of a general agent or agency manager.

Front 52

Independent insurance brokers

Back 52

represent multiple insurers. Independent agents work for themselves or for other producers, in their own work space.

Front 53

Fiduciary

Back 53

a person holding funds or valuable property for the benefit of another person. A fiduciary is generally held to a higher standard of care with respect to the held property.

Front 54

Express authority

Back 54

the authority given to an agent by the contract between the agent and insurer.

Front 55

Implied authority

Back 55

an agent’s authority is implied when it: (1) is intended to be given by the insurer; (2) usually relates to the general customs of the business; (3) is not contractually provided or specifically explained.

Front 56

Apparent authority

Back 56

it is authority that: (1) the contract does not provide; (2) the insurer does not intend; yet (3) reasonably appears to the customer to be granted to the agent based on the agent’s statements and the actions (or inactions) of the insurer.

Front 57

Buyer’s guide

Back 57

a type of disclosure to an insurance applicant that explains the applicant’s rights and responsibilities with regard to the insurance coverage.

Front 58

Policy summary

Back 58

provides detailed information about the specific policy that is being purchased.

Front 59

Cash value

Back 59

the cash value feature is the investment part of a whole life insurance policy. Cash value is the money that builds within the policy over the policy’s life.

Front 60

Errors and Omissions (E&O) insurance

Back 60

covers injuries and damages that occur due to professional services a producer rendered or failed to render.

Front 61

Promisor

Back 61

in a contract, the party who has the “duty to perform.” The promisor is the party who makes the promise.

Front 62

Promisee

Back 62

in a contract, the party to whom the promisor makes a promise.

Front 63

Offer

Back 63

one of the three elements of a contract. To be considered a valid offer, the offeror must express a willingness to enter into an agreement in a way that offeree understands that saying yes to the offer will result in an agreement. Can be either written or verbal.

Front 64

Offeror

Back 64

in a contract, the party making the offer.

Front 65

Offeree

Back 65

in a contract, the party to whom an offer is made.

Front 66

Counteroffer

Back 66

when an offeree fails to accept even one term of an offer, even if all of the other terms are accepted, this action is considered a rejection of the offer and is therby a counteroffer.

Front 67

Consideration

Back 67

one of the three elements of a contract. In the context of a contract, a consideration is something of value that is given by both parties to the contract.

Front 68

Contract of adhesion

Back 68

a contract that is drafted by one party and is offered on a take-it-or-leave-it basis. The other party has little chance to bargain terms, price or other elements; he or she must “adhere” to its provisions.

Front 69

Aleatory

Back 69

in an aleatory contract, one party may receive a benefit that is out of proportion to the consideration he or she is giving. Receiving the disproportionately large benefit depends on wether a chance event occurs.

Front 70

Unilateral contract

Back 70

a contract in which only the insurer makes a promise that can be enforced.

Front 71

Grace period

Back 71

the period after the premium due date during which a policyowner can pay the premium on an insurance policy before the policy lapses. Grace periods are usually 31 days.

Front 72

Indemnity

Back 72

an insurance contract in which the payment of a loss is limited to the insured’s actual loss.

Front 73

Valued contracts

Back 73

a life or health insurance policy that pays a stipulated sum as set in the contract. All life insurance policies are valued contracts, as are accidental death & dismemberment health policies. A valued contract is the opposite of a reimbursement contact.

Front 74

Representation

Back 74

a statement made at the time of contract is formed. This statement persuades a party to enter into the contract.

Front 75

Fraud

Back 75

the deliberate act to deceive with the intent to gain something of value.

Front 76

Warranty

Back 76

a statement guaranteed by the maker to be true in all ways.

Front 77

Concealment

Back 77

the deliberate withholding of material facts when applying for insurance.

Front 78

Waiver

Back 78

when a party to a contract gives up a right that this party knows he or she holds.

Front 79

Estoppel

Back 79

when a party to a contract gives up a right without intending to do so.

Front 80

Indemnity

Back 80

an insurance contract in which the payment of a loss is limited to the insured’s actual loss.

Front 81

Managed Care Plans

Back 81

systems of healthcare delivery. They share the cost of the service and treatment with the managed care provider, such as HMOs or PPOs.

Front 82

Medicare Supplement Plans

Back 82

designed mainly as supplements to reimbursements under Medicare. These plans help pay for the hospital, medical, or surgical costs of persons eligible for Medicare. They were designed to provide funds to pay the deductibles and coinsurance. Medicare supplement policies are also known as Medigap policies. The range of available Medicare supplement policies include 12 different plans, which are Plans A through L. The provisions of each plan are the same among insurers.

Front 83

Group Health Insurance

Back 83

a plan of insurance that an eligible group sponsor, such as an employer, provides for its members. The plan sponsor owns the plan and pays its premiums. The individual group members are the insureds.

Front 84

MSAs

Back 84

the forerunners of HSAs. Group MSAs were created specifically for self-employed people and employees of small employers. Their purpose is to help fund qualified medical expenses on a tax advantaged basis.

Front 85

Sponsor

Back 85

in group life insurance, the sponsor is the policyowner and premium payor.

Front 86

Certificate of Insurance

Back 86

a statement of coverage issued to an enrollee in a group insurance plan. The certificate outlines the benefits and provisions of the master policy issued to the employer.

Front 87

EHB

Back 87

Essential Health Benefits

Front 88

Bronze Plan

Back 88

required to have an actuarial value of 60%. The insured population is expected to pay the remaining 40% through deductibles, copays, and other costsharing features.

Front 89

Siler Plan

Back 89

required to have an actuarial value of 70%, with insureds paying 30%.

Front 90

Gold Plan

Back 90

required to have an actuarial value of 80%, with insureds paying 20%.

Front 91

Platinum Plan

Back 91

required to have an actuarial value of 90%, with insureds paying 10%.

Front 92

Reimbursement contracts

Back 92

a health insurance policy that bases the amount of benefit on the loss that is actually suffered.

Front 93

Valued contracts

Back 93

a life or health insurance policy that pays a stipulated sum as set in the contract. All life insurance policies are valued contracts, as are accidental death & dismemberment health policies. A valued contract is the opposite of reimbursement contract

Front 94

Field underwriting

Back 94

the activities that the agent or producer performs when seeking applications for insurance. This includes requesting information about prospective insureds and helping people fill out applications for coverage.

Front 95

Agent’s report

Back 95

includes information about the client that would be useful to the underwriter; written from the agent’s perspective.

Front 96

Medical Information Bureau (MIB)

Back 96

a non-profit clearinghouse that holds a database of confidential medical information on applicants for life and health insurance.

Front 97

Binding receipt

Back 97

guarantees coverage form the time the applicant completes the application (or the insured completes the medical exam).

Front 98

Conditional receipt

Back 98

provides for conditional coverage. The coverage begins on the date of application or the date of a medical exam if required, whichever is later. The receipt is made on the condition that underwriting determines the insured is insurable.

Front 99

Notice of information practices

Back 99

a type of disclosure to an insurance applicant that informs the applicant that, in the course of underwriting the policy, the insurer may collect information from sources other than the application. In addition, it states how the insurer can share that information with third parties.

Front 100

Buyer’s guide

Back 100

a type of disclosure to an insurance applicant that explains the applicant’s rights and responsibilities with regard to the insurance coverage.

Front 101

Entire contract provision

Back 101

a life and health policy provision that states that if any guarantees, promises, exclusions, or anything else are not included in the policy (or in the application, if made a part of the policy), then they are not part of the contract.

Front 102

Time limit on certain defenses provision

Back 102

one of the 12 required provisions in a health insurance policy. Largely the same as the incontestable clause in life insurance. It limits the time an insurer can void a contract or deny a claim for material misrepresentations on the application.

Front 103

Incontestability clause

Back 103

a provision in an insurance policy that states that after a policy has been in force for a set period, the insurer cannot contest a claim for any reason except for non-payment of premiums. Under most policies, that period is two years.

Front 104

Grace period

Back 104

the period after the premium due-date during which a policyowner can pay the premium on an insurance policy before the policy lapses. Grace periods are usually 31 days.

Front 105

Reinstatement provision

Back 105

a provision that lets the policy owner place a lapsed policy back in force within a certain period. This period is typically three years.

Front 106

Physical examination and autopsy provision

Back 106

one of the 12 required provisions in a health insurance policy, Allows the insurer to require the insured to take a physical exam during the claims investigation process. (The insurer must pay for the exam.) If the claim is because of the death of the insured, this provision also allows the insurer to order an autopsy to determine the cause of death. Again, the insurer must pay for the autopsy.

Front 107

Legal actions provision

Back 107

one of the 12 required provisions in a health insurance policy. Defines the periods during which the insured can take a legal action against the insurer because it didn’t pay a claim.

Front 108

Change of beneficiary provision

Back 108

one of the 12 required provisions in a health insurance police. Applies to those cases where the policy provides a death benefit and a beneficiary has been designates. This provision states that the policyowner has the right to change beneficiaries. However, a beneficiary can be changed only if he or she had been designated revocable.

Front 109

Payment of claims provision

Back 109

defines how and when insurance proceeds are to be paid out. This provision also defines the requirements to initiate a death benefit claim.

Front 110

Notice of claim provision

Back 110

one of the 12 required provisions in a health insurance policy. Requires that the insured notify the insurer within 20 days after he or she has a covered loss.

Front 111

Claim forms provision

Back 111

one of the 12 required provisions in a health insurance policy. States that the insurer must provide claim forms for the insured within 15 days of receiving a notice of claim.

Front 112

Proof of loss provision

Back 112

one of the 12 required provisions in a health insurance policy. The insurer must receive written proof of loss within 90 days of the loss. This period can be extended for extenuating circumstances.

Front 113

Time payment of claims provision

Back 113

one of the 12 required provisions in a health insurance policy. States that the insurance company pays claims immediately after receiving proper proof of loss. Ongoing income payments for disability claims must be paid at least monthly.

Front 114

Change of occupation provision

Back 114

one of the 11 optional provisions in a health insurance policy. This provision allows the insurer to increase the premium if the insured changes to a more hazardous occupation.

Front 115

Other insurance in this insurer provision

Back 115

one of the 11 optional provisions in a health insurance policy. This provision limits the total coverage that the company assumes with one insured.

Front 116

Other insurance with other insurers provision

Back 116

one of the 11 optional provisions in a health insurance policy. Similar to the other insurance with other insurer provision. But this provision extends to coverage with multiple insurers of which the primary insurer had prior knowledge.

Front 117

Worker’s compensation

Back 117

state administered program that protects people who are injured or become sick on the job.

Front 118

Overinsurance

Back 118

a duplication of benefits when a single group participant is covered by more than one plan.

Front 119

Unpaid premium provision

Back 119

one of the 11 optional provisions in a health insurance policy. This provision addresses any premiums the insured may not have paid at the time of a claim. In such a case, the insurer can deduct this amount from the total benefit it owes the insured.

Front 120

Cancellation provision

Back 120

one of the 11 optional provisions in a health insurance policy. Enables an insurer to cancel the policy at any time with 45 days notice.

Front 121

Conformity with state statutes provision

Back 121

one of the 11 optional provisions in a health insurance policy. This provision addresses any provisions that differ from state law. Such a provision is automatically changed to meet the minimum requirements of the law.

Front 122

Illegal occupation provision

Back 122

one of the optional provisions in a health insurance policy. This provision protects the insurer. It allows the insurer to deny liability when the insured’s claim arises from an illegal activity he or she participated in.

Front 123

Free-look provision (formally called the right to examine provision)

Back 123

the provision that gives the new policyowner a set period (usually ten days) in which to review the policy and to decide whether to keep it. The period begins when the policy is delivered to the owner.

Front 124

Insuring clause

Back 124

the basic agreement between the insured and the company. The clause states the company’s promise to pay the policy’s face amount (death benefit) to the named beneficiary if the insured dies.

Front 125

Acceptance

Back 125

one of the three elements of a contract. Under common law, an offeree who wants to accept an offer must abide by any stipulations in the offer and must accept every term of the offer

Front 126

Consideration

Back 126

one of the three elements of a contract. In the context of a contract, a consideration is something of value that is given by both parties to the contract.

Front 127

Consideration clause

Back 127

in a health insurance contract, the applicant’s consideration is the application and the first premium he or she pays.

Front 128

Probationary period

Back 128

when used with an individual health insurance policy, a probationary period is the period that must pass between the policy’s effective date and the time benefits are payable. Its purpose is to help the insurer avoid adverse selection. When used with group insurance, the probationary period is the time the employee must be employed before being eligible for the company’s employee benefits. The employer identifies this period.

Front 129

Disability income policy

Back 129

covers a person who cannot work because of a disabling injury or illness.

Front 130

Elimination periods

Back 130

a waiting period before benefits begin. During this time, benefits are not paid.

Front 131

Preexisting condition

Back 131

a health condition that existed before an insurance policy was issued.

Front 132

Renewability provision

Back 132

in health insurance, this provision defines the terms under which the policy may be cancelled or renewed. Common terms include cancelable, conditionally renewable, guaranteed renewable, and noncancelable.

Front 133

Guaranteed renewable

Back 133

a renewability provision in a health insurance policy under which the insurer guarantees that, during the guaranteed renewable period, it will not cancel the policy, and it will increase premiums only on a class basis.

Front 134

Noncancelable

Back 134

a renewability provision in a health insurance policy under which the insurer guarantees that during the noncancelable period, it will not end the policy, nor will it increase the premium.

Front 135

Guaranteed renewability

Back 135

a renewability provision in a health insurance policy under which the insurer guarantees that, during the guaranteed renewable period, it will not cancel the policy, and it will increase premiums only on a class basis.

Front 136

Noncancelable

Back 136

a renewability provision in a health insurance policy under which the insurer guarantees that during the noncancelable period, it will not end the policy, nor will it increase the premium.

Front 137

Conditionally renewable

Back 137

a renewability provision in a health insurance policy under which the insurer guarantees that the policyowner can renew the coverage. But, he or she must first meet the conditions of the policy.

Front 138

Optionally renewable provision

Back 138

a renewability provision in a health insurance policy under which the insurer holds the right to cancel the policy on a date specified in the contract. This provision also allows the insurer to increase the premium for anyone who is in the optionally renewable class.

Front 139

Cancellable

Back 139

the most extreme renewability provision from the insured’s perspective. Allows the insurer to cancel or end the policy at any time simply by providing written notification. The insurer must also refund any advance premiums paid before canceling the policy.

Front 140

Cash value

Back 140

the cash value feature is the investment part of a whole life insurance policy. Cash value is the money that builds within the policy over the policy’s life.

Front 141

Face value

Back 141

the amount of the death benefit stated in a life insurance policy. In a universal life policy, the face amount is called the “specified amount.”

Front 142

Individual disability income policy

Back 142

covers a person who cannot work because of a disabling injury or illness.

Front 143

Own occupation

Back 143

under a health insurance policy using the own occupation definition of total disability, the policy’s benefits are payable if the insured cannot perform the duties of his or her own regular occupation.

Front 144

Any Occupation

Back 144

under a health insurance policy using the any occupation definition of total disability, the policy’s benefits are payable if the insured is unable to engage in any occupation for pay or profit.

Front 145

Presumption of disability provision

Back 145

a provision in a health insurance policy under which the insured can automatically qualify for the policy’s full benefit if he or she were to suffer from a certain specified conditions. These conditions are severe enough that total disability is presumed.

Front 146

Partial disability

Back 146

the partial disability benefit continues benefit payments (on a reduced basis) to an insured who is recovering from a total disability and is able to work on a partial basis. It is sometimes called a “recovery benefit.”

Front 147

Flat benefit payment

Back 147

a method of benefit payment for a partial disability that is a set amount stated in the policy as a percentage of what would be paid for a total disability.

Front 148

Income replacement policy

Back 148

“A variation of a traditional DI policy that provides a benefit if the insured becomes disabled and cannot perform the duties of his or her occupation and is not engaged in any other occupation.”

Front 149

Probationary period

Back 149

when used with an individual health insurance policy, a probationary period is the period that must pass between the policy’s effective date and the time benefits are payable. Its purpose is to help the insurer avoid adverse selection. When used with group insurance, the probationary period is the time the employee must be employed before being eligible for the company’s employee benefits. The employer identifies this period.

Front 150

Elimination period

Back 150

a waiting period before benefits begin. During this time, benefits are not paid.

Front 151

Benefit period

Back 151

the maximum time for which benefits are paid for a disability under a DI policy or for long-term care under a long-term care policy.

Front 152

Short-term disability insurance (STD)

Back 152

group plans with maximum benefit periods of less than two years.

Front 153

Recurrent disability

Back 153

a disability that occurs within a specified (limited) time after a period of disability from the same or related cause.

Front 154

Relation-to-earnings provision

Back 154

included in many disability income policies, this provision limits the amount of benefits the insurer will pay. The total amount of disability benefits from all insurers and from all policies the insured owns cannot be more than an insured’s usual earning.

Front 155

Nondisabling injury provision

Back 155

included in many disability income policies, this provision pays for medical expenses or medical treatment that the insured incurs because of accidental injuries. The policy pays the benefit even if the injury does not produce a sustained disability or a loss of income.

Front 156

Rehabilitation provision

Back 156

a provision in some DI policies under which the insurer pays for occupational therapy, training, or modifications, to the insured’s work place to help the insured to return to work.

Front 157

Cost-of-living adjustment (COLA) rider

Back 157

the COLA rider adjusts the benefit payments according to changes in the consumer price index (CPI). During times of inflation, the adjustment increases the payments. If the CPI is negative, indication that inflation has reversed, then the monthly income is adjusted downward. However, the monthly income for total disability will never be lower than the initial disability income amount stated in the policy.

Front 158

Social insurance supplement (SIS) rider

Back 158

an individual DI policy rider that provides extra monthly income, helping the person who is eligible for a social insurance program but whose benefits have not yet begun.

Front 159

Future increase option rider

Back 159

an individual DI policy rider that allows the insured to buy extra coverage under the policy without proving evidence of insurability.

Front 160

Return of premium rider

Back 160

enables the insured to get back part of his or her premium payment if he or she has no DI benefit claims against the policy.

Front 161

Certificate of insurance

Back 161

a statement of coverage issued to an enrollee in a group insurance plan. The certificate outlines the benefits and provisions of the master policy issued to the employer.

Front 162

Individual disability income policy

Back 162

covers a person who cannot work because of a disabling injury or illness.

Front 163

Disability buy-out policy

Back 163

when an owner or partner can no longer participate in the business because of a disability, a disability income policy pays a benefit that the partner or shareholders then use to buy out the owner’s or partners’ interest.

Front 164

Entity purchase plan

Back 164

a type of buy-sell agreement in which the business itself is a party to the agreement. In this plan, the business buys the interest or shares of a deceased partner or shareholder. The business can be a partnership or a close corporation.

Front 165

Cross-purchase plan

Back 165

a type of buy-sell agreement that is a contract between individual partners or shareholders. In this agreement, the partners or shareholders agree to buy the interest of the other(s) in the event the individual(s) dies or withdraws from the business.

Front 166

BOE policy

Back 166

designed for the small business owner who becomes disabled, the BOE policy covers certain overhead costs, such as rent, utility bills, insurance, taxes, etc. Such coverage allows the business to continue to run while the owner is disabled or cannot actively run the business.

Front 167

Disability reducing term insurance

Back 167

another form of disability insurance designed for businesses. This type of policy covers any outstanding loan the business might have if and when the business owner becomes disabled.

Front 168

Decreasing term life insurance

Back 168

provides temporary protection for a set period. The death benefit decreases monthly over the policy term. It continues decreasing until it reaches zero at the end of the term.

Front 169

Fully insured status

Back 169

an insured status under Social Security that entitles a worker to full OASDI benefits. Workers born after 1928 must have 40 quarters of coverage to be considered fully ensured.

Front 170

Primary insurance amount (PIA)

Back 170

the amount of the retirement benefit the worker will receive when he or she reaches full retirement age. It is the basis for benefits payable to the worker’s family and dependents.

Front 171

Managed care plans

Back 171

systems of healthcare delivery. They share the cost of the service and treatment with the managed care provider, such as HMOs or PPOs.

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Comprehensive coverage

Back 172

coverage under medical expense insurance that covers a variety of conditions or medical services.

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Specified coverage

Back 173

coverage under medical expense insurance that is limited to one specific form of care, such as vision-only, dental-only, etc.

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Benefit schedule

Back 174

medical expense insurance coverage under which the insurer assigns a “price,” or certain dollar amount or unit value, to each specific medical cost, procedure, charge, or aspect of coverage. The amount the insurer then pays to the insured is some percentage of this assigned price (such as 80%).

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Usual, customary, and reasonable (UCR)

Back 175

under this type of medical expense coverage, the amount payable for the covered service is based on the amount that is usual or common for the area in which the service is performed. Or it is based on the usual charge that most other health providers of similar training or experience charge.

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Any provider coverage

Back 176

medical expense insurance under which the insured can use any health care provider.

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Managed care plans

Back 177

systems of healthcare deliver. They share the cost of the service and treatment with the managed care provider, such as HMOs or PPOs.

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Basic medical expense insurance

Back 178

a category of medical expense insurance that provides coverage for a specific form of medical care. These “first dollar” plans pay benefits beginning with the first dollar the insured incurs, and typically do not involve a deductible or coinsurance.

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Basic hospital expense policies

Back 179

a category of medical expense plan that covers only hospital costs (daily hospital room and board and miscellaneous expenses).

Front 180

Basic surgical expense policies

Back 180

a category of medical expense plan that covers surgeons’ fees and related costs associated with surgery.

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Basic physician expense policies

Back 181

a category of medical expense plan that covers routine doctor’s office visits, charges for diagnostic x-rays, and laboratory charges.

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Supplemental major medical policy

Back 182

covers costs beyond what a basic medical expense plan pays for.

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Stop-loss

Back 183

a feature common to major medical policies that protects the insured by limiting the out-of-pocket dollar amount he or she must pay.

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Flat deductible

Back 184

a stated sum that the insured must pay before he or she can claim policy benefits.

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Corridor deductible

Back 185

common to supplementary major medical plans that work with a basic plan. A corridor deductible is applied after the basic plan pays benefits and before the supplementary plan pays benefits.

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Health maintenance organization (HMO)

Back 186

a corporation that delivers health care services. HMOs are financed by premiums. The HMO creates a network of associated doctors, medical care staffs and participating hospitals and clinics. This network provides curative and preventive treatment to enrolled members and their families.

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Preventive care

Back 187

a strategy used by HOMs to detect diseases in members early and to promote healthy member lifestyles. By so doing, HMOs help members avoid preventable illnesses.

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Primary care physician (PCP)

Back 188

controls access to the HMO network. The PCP’s role is to coordinate and direct members’ health care treatment. Based on this role, the PCP is sometimes known as a “gatekeeper.”

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Preferred provider organizations (PPOs)

Back 189

a managed care arrangement made up of a network of health care providers. This group contracts with a sponsoring organization an employer, an insurer, or a third party administrator to provide health care services. These services are offered at negotiated reduced fees to the sponsoring organization’s members or employees.

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Point-of-service (POS) plans

Back 190

allows an HMO member to get treatment from a provider outside the HMO network. In a PPO, the POS option covers out-of-network services at a lower rate or lower percentage; members must pay larger out-of-pocket cost on deductibles and co-payments.

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Blue Cross/Blue Shield

Back 191

the first of the pre-paid health plans that enrolled members or subscribers. Blue Cross provides coverage for hospital care; Blue Shield provides medical and surgical care.

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Community rating

Back 192

a way of rating group contracts that examines the community or region in which the group operates. It then bases the group’s premiums on the overall characteristics of a much broader risk pool (that is, the community).

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Utilization reviews

Back 193

used by managed care plans to assess the need for and appropriateness of given health care services for members or subscribers. It is a primary tool to control over-utilization, to reduce costs, and to manage health care services.

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Managed care provider

Back 194

provide their insureds with health care directly through a network of health care providers.

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Flexible spending accounts

Back 195

another way to finance health care costs. An FSA is designed specifically as a group benefit that an employer can offer to its employees. It allows the employees to contribute to the plan on pre-tax basis (not subject to taxation). Not tied to a high-deductible insurance plan.

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Medical savings account

Back 196

the forerunners of HSAs. Group MSAs were created specifically for self-employed people and employees of small employers. Their purpose is to help fund qualified medical expenses on a tax-advantage basis.

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Health savings account (HSA)

Back 197

a tax-exempt account into which account holders can make tax-deductible contributions to finance health care services. Funds in an HSA account grow tax-free. If withdrawn to cover medical expenses, they are also received tax free.

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Flexible spending account (FSA)

Back 198

another way to finance health care costs. An FSA is designed specifically as a group benefit that an employer can offer to its employees. It allows the employees to contribute to the plan on pre-tax basis (not subject to taxation). Not tied to a high-deductible insurance plan.

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Long-term care

Back 199

a broad term that includes a wide range of assistance, services, or devices provided over an extended period. Long-term care is designed to meet medical, personal, and social needs in a variety of settings or locations to enable a person to live as independently as possible. Such care may involve custodial care, intermediate care, or skilled nursing care.

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Special risk policies

Back 200

applies to unique hazards or risks. An example is a boxer who insures himself for a boxing match.

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Limited risk policy

Back 201

pays benefits only for a very specific risks.

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Accidental means

Back 202

one of the ways in which AD&D policy pays its benefit. (The other way is the accidental results requirement.) Requires both the cause and the result of an accident to be by chance for the policy to pay the benefit.

Front 203

Accidental results

Back 203

one of the ways in which an AD&D policy pays its benefits. (The other way is the accidental means requirement.) Requires only that the death or injury be accidental. The cause of the accident is not a factor.

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Principal sum

Back 204

the benefit payable for accidental death. This sum is the amount of insurance the insured bought.

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Capital sum

Back 205

the amount payable under an AD&D policy for accidental dismemberment; usually some percentage of the principal sum.

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Death benefit

Back 206

the death benefit in a life insurance contract is generally used to provide income for beneficiaries when the insured dies. In this way, the death benefit replaces the deceased insured’s future lost income.

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Credit disability insurance

Back 207

a variation of a traditional DI policy (income replacement policy is the other variation) that covers the risk of becoming disabled and being unable to pay off a large loan. The policy is written so that its benefit period is the same as the loan period. The benefits payable are matched to the decreasing loan balance. If the insured becomes disabled during the policy’s period, then the policy pays off the balance of the loan to the creditor.

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Benefit period

Back 208

the maximum time for which benefits are paid for a disability under a DI policy or for long-term care under a long-term care policy.

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Dread disease insurance

Back 209

another form of medical expense indemnity plan that covers specific illnesses such as heart disease, multiple sclerosis, or cancer. These types of policies cover all medical costs associated with these diseases and have very high maximum limits.

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Prepaid plan

Back 210

a plan under which the health care provider pre-negotiates with the insurer the fees for a given service. The health care provider bills the insurer directly rather than billing the insured. HMOs and PPOs typically use the pre-paid option.

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Medicare

Back 211

a federal health insurance program designed specifically for people age 65 and over and for certain disabled persons. Medicare is funded by payroll taxes. It extends the Social Security program beyond retirement, disability, and survivor benefits into the field of medical expense benefits. Coverage provided under Medicare is divided into four parts: A through D.

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Home health care

Back 212

a type of long-term care received in the home. May include part-time nursing care, speech or physical therapy, and the services of home health aids.

Front 213

Medicare advantage

Back 213

the popular name for Medicare Part C. This part of Medicare opened the program to new health care providers and health care programs. These new additions offer the full range of Medicare services to participants. Such services include managed care plans, preferred provider organizations, and private fee-for-service plans.

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Skilled nursing care

Back 214

nursing care normally in a facility that is provided under the supervision of skilled professionals and under a doctor’s orders.

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Hospice care

Back 215

care for terminally ill Medicare beneficiaries. The goal of hospice care is to help terminally ill people continue life with little disruption to normal activities while staying mainly at home.

Front 216

Medicare supplement policies

Back 216

designed mainly as supplements to reimbursements under Medicare. These plans help pay for the hospital, medical, or surgical costs of persons eligible for Medicare. They were designed to provide funds to pay the deductibles and coinsurance. Medicare supplement policies are also known as Medigap policies. The range of available Medicare supplement policies include 12 different plans, which are Plans A through L. The provisions of each plan are the same among insurers.

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Medigap

Back 217

see medicare supplement policies.

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Guaranteed renewable

Back 218

a renewability provision in a health insurance policy under which the insurer guarantees that, during the guaranteed renewable period, it will not cancel the policy, and it will increase premiums only on a class basis.

Front 219

Medicare select plan

Back 219

medicare supplement coverage offered by a managed care provider or by an insurance company that offers the policy’s benefits through a network of doctors, hospitals, and health care service providers.

Front 220

Spending down

Back 220

the process by which applicants exhaust their assets to qualify for Medicaid, if these assets are above the allowable limit.

Front 221

Medicaid

Back 221

a program funded by state and federal funds and administered by the states. This program pays for healthcare for the financially needy, regardless of age.

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Long-term care (LTC)

Back 222

a broad term that includes a wide range of assistance, service, or devices provided over an extended period. Long-term care is designed to meet medical, personal, and social needs in a variety of settings or locations to enable a person to live as independently as possible. Such care may involve custodial care, intermediate care, or skilled nursing care.

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Home health care

Back 223

a type of long-term care received in the home. May include part-time nursing care, speech or physical therapy, and the services of home health aides.

Front 224

Skilled nursing care

Back 224

nursing care normally in a facility that is provided under the supervision of skilled professionals and under a doctor’s orders.

Front 225

Intermediate care

Back 225

on-going care necessary to address a person’s condition, but not needed 24-hours a day. Intermediate care is delivered by registered nurses, licensed practical nurses, and nurses aides, who are being supervised by a doctor, It is usually delivered in a nursing home, but depending on the individual case, it can also be provided at one’s home or in a community-based center.

Front 226

Custodial care

Back 226

care provided to help a person meet daily living requirements, like bathing, dressing, or eating. Caregivers who provide the custodial care don’t need any specialized training. But, such care must be directed and monitored by a licensed physician. Custodial care can be provided in nursing homes, adult day-care centers, respite centers, or at a person’s home.

Front 227

Inflation protection option

Back 227

a rider an insured can add to an LTC policy to account for the rising costs of long-term care.

Front 228

Tax-qualified LTC policy

Back 228

enables policyowners to deduct premiums as a medical expense deduction. It also enables policyowners to receive limited benefits tax-free.

Front 229

Master policy

Back 229

in a group life policy, the master policy indicates the sponsor as policy owner and premium payor.

Front 230

Individual coverage

Back 230

a class of life (or health) insurance policy where a single owner owns the policy for an insured named in the policy.

Front 231

Group coverage

Back 231

a class of life (or health) insurance policy where one policy covers several people.

Front 232

Group life insurance

Back 232

a life insurance policy that covers multiple non-related people.

Front 233

Trust

Back 233

a legal entity established to own and hold property or assets for the benefit of another person or people.

Front 234

Multiple employer trusts (METs)

Back 234

a trust of two or more employers that buy group insurance for their employees. Contributions from the employers, employees, or a combination of both are paid into the trust. The trust buys insurance for the benefit of the employees. The trust owns the policy.

Front 235

Self-funded plans

Back 235

a group health insurance plan under which the employer funds and pays for member claims and benefits. The employer’s premium payments are directed into a trust from which the plan’s benefits and claims are paid.

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Insured plans

Back 236

a group health insurance plan under which an insurer takes over the risk of covering member claims and benefits. The employer’s premiums are given directly to the insurance company.

Front 237

Natural group

Back 237

a collection of people that form a group simply because they work in the same place or happen to belong to a mutual organization. To be eligible for group coverage, the group must be a natural group.

Front 238

Franchise associations

Back 238

groups consisting of small employers in the same business who own and operate franchises.

Front 239

Contributory

Back 239

a group plan in which the employer and the employee jointly pay the premiums.

Front 240

Conversion privilege

Back 240

in group insurance, the right of an insured to convert from group insurance to individual coverage without having to prove insurability. Also applies to a policyowner’s right in a convertible term insurance policy to exchange the term life insurance policy for a permanent life insurance policy.

Front 241

Employment Retirement Income Security Act (ERISA)

Back 241

regulates and protects those enrolled in group health plans, as well as covering qualified retirement plans.

Front 242

Summary plan description

Back 242

describes what the employer-sponsored plan covers and what rules must be followed to obtain the benefits the plan offers.

Front 243

Fiduciary

Back 243

a person holding funds or valuable property for the benefit of another person. A fiduciary is generally held to a higher standard of care with respect to the held property.

Front 244

Age discrimination in employment act (ADEA)

Back 244

PASSED IN 1967, AMENDED IN 1986 AND 1991. This act makes it illegal to discriminate against those age 40 or older in employment practices.

Front 245

Pregnancy discrimination act

Back 245

makes discrimination on the basis pregnancy, childbirth, or related medical conditions unlawful sexual discrimination.

Front 246

Consolidated omnibus budget reconciliation act of 1985 (COBRA)

Back 246

protects those who are no longer covered by an employer’s health insurance plan or its benefits. Coverage lasts for up to 18 months.

Front 247

Portability

Back 247

when insureds can take their health benefits with them from job to job.

Front 248

Insurable risks

Back 248

an applicant is an insurable risk to the insurer if he or she meets certain criteria for insurability; if these criteria are met, then the applicant is insurable.

Front 249

Investigative consumer reports

Back 249

used in the underwriting process. Provides information on a person’s personal history and lifestyle. These reports also provide information on his or her financial condition. They can be required in underwriting a policy for issue.

Front 250

Substandard risks

Back 250

one of the three risk classifications. An applicant can receive this rating for a number of reasons, including poor health, bad habits, dangerous job, or high number of early major illnesses in the family.

Front 251

Impairment rider

Back 251

in a health insurance contract, an insurer usually uses an impairment rider to limit or exclude coverage for a specific condition an insured may have.

Front 252

Load

Back 252

a premium factor that represents the insurer’s expenses (and the profit the company wants to derive).

Front 253

Morbidity rate

Back 253

used by insurers in pricing health insurance policies. Morbidity rates indicate the average number of persons at various ages who can be expected to become disabled because of sickness or accident. Morbidity rates also indicate how long a disability is expected to last.

Front 254

Own occupation

Back 254

under a health insurance policy using the own occupation definition of total disability, the policy’s benefits are payable if the insured cannot perform the duties of his or her own regular occupation.

Front 255

Underwriting

Back 255

the process that determines if the risk proposed for insurance should be accepted or rejected.

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Sponsor

Back 256

in group life insurance, the sponsor is the policyowner and premium payor.

Front 257

Experience rating

Back 257

a way of rating group contracts that focuses on the individual group, its makeup and, most importantly, its past claims experience.

Front 258

Community rating

Back 258

a way of rating group contracts that examines the community or region in which the group operates. It then bases the group’s premiums on the overall characteristics of a much broader risk pool (that is, the community).

Front 259

Group coverage

Back 259

a class of life (or health) insurance policy where one policy covers several people.

Front 260

Chronically ill

Back 260

a term describing a person with an illness that is a permanent or residual disability, requires rehabilitation training, or requires a long period of supervision, observation, or care.

Front 261

Section 125 cafeteria plan

Back 261

a group health plan that enables employees to select among various employee benefits. Section 125 plans also allow employees to have a portion of their wages withheld, on a pre-tax basis, to fund these benefits. Section 125 plans provide a way for employees to pay for their share of a group health plan on a before-etax basis.

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Managed care plan

Back 262

systems of healthcare delivery. They share the cost of the service and treatment with the managed care provider, such as HMOs or PPOs.

Front 263

S corporation

Back 263

a form of corporation, allowed by the IRS for most companies with 75 or fewer shareholders, which enables the company to enjoy the benefits of incorporation but be taxed as if it were a partnership. Also called Subchapter S Corporation.

Front 264

Buy-sell agreement

Back 264

an agreement in which someone agrees to buy a deceased business owner’s interest in the business upon the owner’s death. These agreements are typical for small businesses, such as partnerships or close corporations.

Front 265

The Gramm-Leach-Bliley Act (GLBA)

Back 265

also called the Financial Modernization Act of 1999. It contains three major sections.

Front 266

Financial Privacy Rule

Back 266

This regulates the collection and disclosure of personal financial information by financial institutions.

Front 267

Safeguards Rule

Back 267

This regulates financial institutions that collect information from their own customers and from other financial institutions, requiring them to design, implement, and maintain safeguards to protect customer information.

Front 268

Pretexting

Back 268

This regulates companies by protecting consumers from the securing of personal financial information under false pretenses.

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Law of large numbers

Back 269

a method of predicting future losses with great accuracy. It is based on the principle that the great the number of incidents of a random process, the more the expected number of incidents and the actual numbers of incidents tend to become the same. It is the mathematical principle of probability on which insurance rests.

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Stock insurance companies

Back 270

owned by stockholders, these companies pay dividends, when declared, to their stockholders.

Front 271

Mutual insurance companies

Back 271

owned by policyowners; mutual companies have no stockholders.

Front 272

Policy dividends

Back 272

an amount returned to the owner of a participating insurance policy out of an insurance company’s surplus funds.

Front 273

Ordinary life insurance

Back 273

a class of individual life insurance that offers individual coverage in a variety of term (temporary) or permanent plans, in any face amount.

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Face amounts

Back 274

the amount of the death benefit stated in a life insurance policy. In a universal life policy, the face amount is called the “specified amount.”

Front 275

Reciprocal insurance exchange

Back 275

an unincorporated group of individuals (called subscribers), working together through an attorney-in-fact, who each agree to pay a pro rata share of any loss suffered by any other member.

Front 276

Purchasing groups

Back 276

a group of persons or entities with similar risks who form an organization for the purpose of buying insurance on a group basis.

Front 277

Surplus lines insurance

Back 277

a specialized insurance coverage that is offered when either of these conditions arises: (1) a risk or a part of a risk is identified for which there is no market available through the original or producing agent; or (2) a state bars the sale of a specific type of coverage or otherwise prevents insurance companies from providing coverage for a particular risk or restricts them from charging adequate rates.

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Reinsurance

Back 278

an insurer that sells insurance to the public enters into an agreement with another insurance company to accept some of its risk. The insurer accepting some of the risk being transferred is known as the reinsurance company.

Front 279

Admitted insurer

Back 279

a company that has received a certificate of authority from the state. This certificate permits the company to transact insurance within the state. It certifies that the company has met the state’s requirements for conducting the business of insurance. Admitted insurers are also called “authorized insurers.”

Front 280

Common law rules of agency

Back 280

the unwritten law based on the customs, ideas, and judicial decisions that existed in England at the time of the American Revolution; became the basis of the American legal system.

Front 281

Principal

Back 281

the party on whose behalf the agent acts.

Front 282

Fiduciary

Back 282

a person holding funds or valuable property for the benefit of another person. A fiduciary is generally held to a higher standard of care with respect to the held property.

Front 283

Buyer’s-guide

Back 283

a type of disclosure to an insurance applicant that explains the applicant’s rights and responsibilities with regard to the insurance coverage.

Front 284

Cash value

Back 284

the cash value feature is the investment part of a whole life insurance policy. Cash value is the money that builds within the policy over the policy’s life.

Front 285

Promisor

Back 285

in a contract, the party who has the “duty to perform.” The promisor is the party who makes the promise.

Front 286

Promisee

Back 286

in a contract, the party to whom the promisor makes a promise.

Front 287

Consideration

Back 287

one of the three elements of a contract. In the context of a contract, a consideration is something of value that is given by both parties to the contract.

Front 288

Contract of adhesion

Back 288

a contract that is drafted by one party and is offered on a take-it-or-leave-it basis. The other party has little chance to bargain terms, price or other elements; he or she must “adhere” to its provisions.

Front 289

Aleatory

Back 289

in an aleatory contract, one party may receive a benefit that is out of proportion to the consideration he or she is given. Receiving the disproportionately large benefit depends on whether a chance event occurs.

Front 290

Unilateral contract

Back 290

a contract in which only the insurer makes a promise that can be enforced.

Front 291

Indemnity

Back 291

an insurance contract in which the payment of a loss is limited to the insured’s actual loss.

Front 292

Valued contracts

Back 292

a life or health insurance policy that pays a stipulated sum as set in the contract. All life insurance policies are valued contracts, as are accidental death & dismemberment health policies. A valued contract is the opposite of a reimbursement contract.

Front 293

Representation

Back 293

a statement made at the time of a contract is formed. This statement persuades a party to enter into the contract.

Front 294

Estoppel

Back 294

when a party to a contract gives up a right without intending to do so.

Front 295

Warranty

Back 295

a statement guaranteed by the maker to be true in all ways.

Front 296

Representation

Back 296

a statement made at the time a contract is formed. This statement persuades a party to enter into the contract.

Front 297

Insurable interest

Back 297

for a life insurance contract to be issued, the applicant for the life insurance contract must be expected to suffer a financial loss from the insured’s death. This situation constitutes insurable interest.

Front 298

Assignee

Back 298

the person to whom the policyowner assigns the rights in an insurance policy.

Front 299

Group life insurance

Back 299

a life insurance policy that covers multiple non-related people.

Front 300

Group coverage

Back 300

a class of life (or health) insurance policy where one policy covers several people.

Front 301

Master policy

Back 301

in a group life policy, the master policy indicates the sponsor as policy owner and premium payor.

Front 302

Association groups

Back 302

in relation to group life insurance, an association group is comprised of members of associations, such as independent school districts or cities and towns. Members can be insured under an association plan.

Front 303

Joint life insurance

Back 303

permanent coverage that insures two persons under one policy. The policy pays the death benefit when the first insured dies.

Front 304

Industrial insurance policy

Back 304

a class of individual life insurance that offers individual coverage in small amounts usually around $1,000 to $2,000. Generally, an insurance agent calls on the policyowner at home on a weekly or monthly basis to collect the premium. Also known as home service insurance.

Front 305

Permanent life insurance

Back 305

a class of life insurance, permanent insurance lasts for the insured’s entire lifetime or until age 120. As long as premiums are paid, the insurance stays in force and is guaranteed to pay its death benefit.

Front 306

Level premium

Back 306

in life insurance policies, insureds pay the same (level) premium over the life of the policy. At any time, the insured never pays more in premium than he or she paid in the early years of the policy, when he or she was young.

Front 307

Whole life insurance

Back 307

provides permanent insurance coverage for a person’s lifetime. Provides guarantees for premiums, cash value, and death benefits.

Front 308

Term life insurance

Back 308

provides protection for a specified, limited period. The term can be defined in years or by the age of the insured.

Front 309

Participating policy

Back 309

a class of life (or health) insurance policy in which the owner is paid a dividend out of the insurance company’s earnings that are available for distribution (the divisible surplus).

Front 310

Nonparticipating policy

Back 310

a class of life (or health) insurance policy in which the owner is not entitled to be paid a dividend. Generally, individual health insurance is nonparticipating.

Front 311

Fixed life insurance policy

Back 311

a form of permanent life insurance in which the insurer guarantees a fixed death benefit and a minimum rate of return on the policy’s cash value. The insurer assumes all risk for investing premiums received from policyowners through its general accounts and making enough profit to cover the policy’s promised benefits.

Front 312

Variable life insurance

Back 312

a form of permanent whole life insurance in which premiums are placed in investment subaccounts that the policyowner owns. The insurer guarantees a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall on the basis of the sub-account’s investment performance.

Front 313

General account

Back 313

the basic account in which an insurance company maintains the funds that support its fixed life insurance and annuity products. The general account’s conservative investments allow the insurer to guarantee interest returns on its fixed insurance and annuity products.

Front 314

Net single premium

Back 314

the theoretical single premium amount, minus (“net of”) the expense charge, required to fund a fixed life insurance policy’s face amount. Calculating the net single premium is the first step in calculating the premium actually paid by the policy owner. (When an expense charge is added, the result is the gross single premium.)

Front 315

Gross annual premium

Back 315

a premium that includes the loading costs.

Front 316

National Association of Insurance Commissioners (NAIC)

Back 316

an association of insurance commissioners in the various states. Actively proposes model laws that standardize policies and promote fair trade practices in the insurance industry.

Front 317

Mortality rates

Back 317

used by insurers in pricing health insurance policies. Mortality rates indicate the average number of persons within a very large group who can be expected to die in any given year.

Front 318

Annuitant

Back 318

the person an annuity owner chooses to receive the periodic annuity payments when the contract annuitizes.

Front 319

Load

Back 319

a premium factor that represents the insurer’s expenses (and the profit the company wants to derive).

Front 320

Premium tax

Back 320

a tax levied on insurance companies on the receipt of premiums.

Front 321

Maintenance fee

Back 321

a fee charged by some variable life and health insurers that is added to the initial premium. The fee pays the costs of acquiring the new business and offsets costs such as commissions, administration setup, and ongoing maintenance.

Front 322

Single premium life insurance

Back 322

the most extreme form of limited pay life. The policy is paid with one premium at the time the policy is bought.

Front 323

Level premium payment

Back 323

a premium payment plan in which the premium is set and remains fixed over the policy’s term.

Front 324

Whole life insurance

Back 324

provides permanent insurance coverage for a person’s lifetime. Provides guarantees for premiums, cash value, and death benefits.

Front 325

Variable life insurance

Back 325

a form of permanent whole life insurance in which premiums are placed in investment sub-accounts that the policyowner owns. The insurer guarantees a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall on the basis of the sub-account’s investment performance.

Front 326

Universal life insurance

Back 326

an extremely flexible life insurance policy in which the policyowner can, within certain limits, increase premiums, reduce premiums, or pay no premiums. Similarly, the policyowner can increase the benefit paid at death (subject to evidence of insurability) or can decrease it. The three factors central to the policy (mortality, expenses, and interest) are separate elements.

Front 327

Variable universal life insurance

Back 327

combines the features of universal life insurance with the ability to allocate premiums to a separate account.

Front 328

Third-party ownership

Back 328

in a life insurance policy, when the insured and policyowner are not the same person.

Front 329

Bring-back rule

Back 329

when an insured transfers his or her life insurance policy to a third party and dies within three years after the transfer, at which time the policy death benefits are included in the insured’s estate for tax purposes.

Front 330

Stranger originated life insurance (STOLI) also known as investor originated life insurance (IOLI)

Back 330

is an arrangement in which an investor or investor group convinces a consumer usually someone between the ages of 65 and 80 to take out an insurance policy on his or her life in exchange for an eventual lump-sum payment.

Front 331

Key employee life insurance

Back 331

when a business applies for, owns, and is the beneficiary of the policy covering the life of a key employee.

Front 332

Fiduciary

Back 332

a person holding funds or valuable property for the benefit of another person. A fiduciary is generally held to a higher standard of care with respect to the held property.

Front 333

Annuity

Back 333

a cash contract between a person (the annuity owner) and a life insurance company (the annuity issuer). The annuity is set up to accumulate and/or distribute a sum of money?

Front 334

Field underwriting

Back 334

the activities that the agent or producer performs when seeking applications for insurance. This includes requesting information about prospective insureds and helping people fill out applications for coverage.

Front 335

Backdating

Back 335

the agreement to make a policy effective earlier than the application date of the policy.

Front 336

Save age

Back 336

backdating a policy by up to six months, which qualifies an applicant to have the policy issued at a younger age. Because the policy is issued at a younger age, the policyowner pays a lower premium.

Front 337

Premium receipt

Back 337

the receipt an agent normally gives an applicant when the applicant submits an application for life insurance with the first premium payment. The receipt is designed to offer interim coverage while the application is being approved and the policy is being formally issued.

Front 338

Conditional receipt

Back 338

provides for conditional coverage. The coverage begins on the date of application or the date of a medical exam if required, whichever is later. The receipt is made on the condition that underwriting determines the insured is insurable.

Front 339

Binding receipt

Back 339

guarantees coverage from the time the applicant completes the application (or the insured completes the medical exam).

Front 340

Deferred annuity

Back 340

make their income payouts several years after a person buys the contract. During these years, funds accumulate and grow within the contract on a tax-deferred basis. These funds belong at all times to the contract owner.

Front 341

Legal delivery

Back 341

legal delivery of a policy requires personal delivery to the client and an explanation. For example, the agent should explain any terms of the policy that were imposed during the underwriting process. The agent should also inform the owner of any additional premium charge that was not known at the time of application.

Front 342

Replacement

Back 342

exists any time an existing life insurance policy-in any way-is diminished in its value.

Front 343

Attending physician’s statement (APS)

Back 343

a document requested by an underwriter that includes specific details about any medical conditions found in the health section of a proposed insured’s application for insurance. The APS is written by the proposed insured’s doctor.

Front 344

Medical information bureau (MIB)

Back 344

a non-profit clearinghouse that holds a database of confidential medical information on applicants for life and health insurance.

Front 345

Inspection report

Back 345

provides details on an applicant’s finances, occupation, personal habits, and lifestyle. Used by insurers to verify the information the applicant provides to agents and examiners.

Front 346

Term insurance

Back 346

a class of life insurance, term coverage is temporary, applying only for a limited period. At the end of that period, the policy expires. The policy pays a death benefit only if the insured dies during the term. The term can be defined in years or by the age of the insured.

Front 347

Permanent insurance

Back 347

a class of life insurance, permanent insurance lasts for the insured’s entire lifetime or until age 120. As long as premiums are paid, the insurance stays in force and is guaranteed to pay its death benefit.

Front 348

Level term insurance

Back 348

provides a level death benefit and charges a level premium for the duration of the coverage term.

Front 349

Renewable term life insurance

Back 349

a type of level term insurance contract that allows the coverage to be renewed for another period or another term without proof of insurability.

Front 350

Face amount

Back 350

the amount of the death benefit stated in a life insurance policy. In a universal live policy, the face amount is called the “specified amount.”

Front 351

Convertibility provision

Back 351

allows an insured to change to a different policy without having to prove insurability. Usually found in term insurance and group insurance.

Front 352

Decreasing term life insurance

Back 352

provides temporary protection for a set period. The death benefit decreases monthly over the policy term. It continues decreasing until it reaches zero at the end of the term.

Front 353

Increasing term life insurance

Back 353

the opposite of decreasing term. With this type of insurance, the death benefit increases over the term to a preset amount or at a preset rate. The premium normally remains level.

Front 354

Straight whole life policy

Back 354

a whole life policy in which death benefits are level. Level premiums are paid until the insured dies or until he or she reaches age 120, whichever comes first.

Front 355

Permanent insurance

Back 355

a class of life insurance, permanent insurance lasts for the insured’s entire lifetime or until age 120. As long as premiums are paid, the insurance stays in force and is guaranteed to pay its death benefit.

Front 356

Ordinary whole life policy

Back 356

see straight whole life policy.

Front 357

Net amount at risk

Back 357

the difference between a life insurance policy’s cash value and the policy’s death benefit.

Front 358

Limited payment whole life insurance

Back 358

a whole life insurance policy under which a policyowner pays a higher premium than for an otherwise identical ordinary whole life policy in return for the right to pay premiums for a shorter period.

Front 359

Single premium life insurance policy

Back 359

the most extreme form of limited pay life. The policy is paid with one premium at the time the policy is bought.

Front 360

Modified premium whole life insurance

Back 360

policies with a lower premium in the early years of the policy, usually the first five years. At the end of the initial period, the premium is increased and stays at that increased level for the life of the policy.

Front 361

Graded premium whole life insurance

Back 361

has premiums that start very low (compared to straight whole life). They then increase annually for a long period and stay level for the rest of the life of the policy.

Front 362

Indeterminate premium whole life insurance

Back 362

a whole life policy issued with two premium rates: (1) a lower fixed rate and (2) a guaranteed maximum rate.

Front 363

Current assumption whole life (CAWL)

Back 363

a life insurance policy characterized by premium rates that can change over time in response to the insurer’s actual mortality, interest, and expense experience.

Front 364

Redetermination

Back 364

the process insurers use to evaluate their actual experience and to apply the changes to their premium rates.

Front 365

Interest-sensitive whole life insurance

Back 365

a life insurance policy characterized by premium rates that can change over time in response to the insurer’s actual mortality, interest, and expense experience.

Front 366

Current assumption whole life insurance

Back 366

see interest-sensitive whole live insurance.

Front 367

Indexed whole life insurance

Back 367

a type of whole life policy that ties its death benefit and its premiums to a specified index, most commonly the Consumer Price index (CPI). Over time, the policy’s face amount increases automatically with CPI increases.

Front 368

Variable life insurance

Back 368

a form of permanent whole life insurance in which premiums are placed in investment sub-accounts that the policyowner owns. The insurer guarantees a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall on the basis of the sub-account’s investment performance.

Front 369

Subaccount

Back 369

investment accounts into which VLI policy values are invested. Sub-accounts are unsecured and nonguaranteed.

Front 370

Adjustable life insurance

Back 370

a life insurance policy that lets the policyowner change the three elements of a life insurance policy as often as he or she wants: (1) premium, (2) cash value, and (3) death benefit. In changing these three elements, the policy can function at any one time as a term life policy, an ordinary whole life policy, or a limited payment life policy.

Front 371

Universal life insurance(UL)

Back 371

an extremely flexible life insurance policy in which the policyowner can, within certain limits, increase premiums, reduce premiums, or pay no premiums. Similarly, the policyowner can increase the benefit paid at death (subject to evidence of insurability) or can decrease it. The three factors central to the policy (mortality, expenses, and interest) are separate elements.

Front 372

Lapse

Back 372

when an insurer terminates an insurance policy because the policyowner did not pay premiums.

Front 373

Minimum premium

Back 373

in a UL policy, the minimum amount that is estimated to cover the cost of pure UL insurance and policy expenses.

Front 374

Target premium

Back 374

in a UL policy, the premium level at which insurers typically pay full first-year commissions to their agents.

Front 375

Maximum premium

Back 375

in a UL policy, the highest amount that can be paid for that level of death benefit and still allow the policy to meet the guideline premium test.

Front 376

Guideline premium test

Back 376

one of the tests a policy must meet to qualify as a life insurance. A policy must meet this test to receive the favorable tax status of life insurance.

Front 377

Net amount at risk

Back 377

the difference between a life insurance policy’s cash value and the policy’s death benefit.

Front 378

Corridor requirement

Back 378

the minimum amount of pure risk that must be maintained in a life insurance policy for it to meet the statutory definition of life insurance. Meeting this definition qualifies the policy for a favorable tax treatment given to life insurance policies.

Front 379

Specified amount

Back 379

the amount of death benefit a policyowner initially bus in a universal life policy.

Front 380

Death benefit Option 1¬

Back 380

a universal life insurance death benefit under which the benefit payable when the insured dies stays level and equal to the initial specified amount. Also called Option A.

Front 381

Death benefit Option 2

Back 381

a universal life insurance death benefit that is a generally increasing death benefit. This benefit equals the policy’s specified amount plus its cash value.

Front 382

Surrender

Back 382

when a policyowner actively cancels the policy.

Front 383

Surrender charge

Back 383

a charge imposed on the early surrender of or withdrawal of funds form a universal life insurance policy. The purpose of the surrender charge is to enable to insurer to recover the costs it incurs in selling and underwriting the policy. A surrender charge is sometimes referred to as a contingent deferred sales charge.

Front 384

Front-end load

Back 384

a life insurance policy in which an insurer deducts costs and fees from each premium before crediting the premium to the policy’s cash value. As a result, the amount that is actually invested in the contract is reduced.

Front 385

Back-end loaded

Back 385

a life insurance contract that subtracts its costs and fees after premiums have been deposited and when values are withdrawn from the contract.

Front 386

Equity

Back 386

indexed life insurance a form of permanent insurance. The interest credited to the contract’s cash value is tied to an equity index instead of to a rate declared by the insurer.

Front 387

Variable universal life insurance (VUL)

Back 387

combines the features of universal life insurance with the ability to allocate premiums to a separate account.

Front 388

Subaccount

Back 388

investment accounts into which VLI policy values are invested Sub-accounts are unsecured and nonguaranteed.

Front 389

Variable subaccount

Back 389

an investment portfolio included in the separate account. Variable product owners can allocate premiums and cash value into the separate account.

Front 390

Death benefit Option 3

Back 390

a variable universal life insurance death benefit under which the benefit payable at the insured’s death equals the initial specified amount plus the net aggregate premiums credited to the policy.

Front 391

Specialized life insurance policies

Back 391

a category of life insurance policy characterized not by the policies’ design or features but by the purpose for which these policies are written. This category of life insurance policy includes joint life insurance, survivorship policies, juvenile life insurance, and life insurance for family uses and needs.

Front 392

Joint life insurance

Back 392

permanent coverage that insurers two persons under one policy. The policy pays the death benefit when the first insured dies.

Front 393

Second-to-die life insurance

Back 393

commonly known as second-to-die policies. These policies are so called because they insure more than one person but pay the death benefit only when the second insured dies.

Front 394

Jumping juvenile life insurance

Back 394

a form of permanent coverage, typically issued in units of $1,000 of death benefit. Because the insured is so young when the policy is issued, the premiums are relatively small. When the insured child reaches age 21, the death benefit jumps to $5,000 per unit. However, the premium does not change, nor is proof of insurability required.

Front 395

Juvenile estate builder

Back 395

see jumping juvenile life insurance.

Front 396

Lump-sum

Back 396

payment of insurance policy proceeds in a single (lump) sum.

Front 397

Family income policy

Back 397

a life insurance policy that combines whole life insurance and decreasing term life insurance on a named insured. The person named it typically a family’s main wage earner. The period for the payment of the term portion of the death benefit begins when the contract is issued.

Front 398

Monthly income unit

Back 398

in a family income policies, monthly income as defined in terms of $10 for every $1,000 of whole life coverage.

Front 399

Family maintenance policy

Back 399

provides an income to surviving family members by combining whole life insurance with level term life insurance. The period for the payment of the term portion of the death benefit begins when the insured dies.

Front 400

Term rider

Back 400

can be added to any policy to increase the death benefit payable if the insured dies during the specified term. Term riders are pure death benefit they have no cash value or other living benefits associated with them.

Front 401

Family protection policy

Back 401

a policy in which the entire family receives life insurance coverage under a single policy.

Front 402

Modified endowment contract (MEC)

Back 402

a category of life insurance policy that fails to meet the 7-pay test imposed by the federal government. Because of that, a MEC loses some, but not all, of the favorable tax treatment normally given to life insurance policies.

Front 403

Single premium life insurance policy

Back 403

the most extreme form of limited pay life. The policy is paid with one premium at the time the policy is bought.

Front 404

Group life insurance

Back 404

a life insurance policy that covers multiple non-related people.

Front 405

Natural group

Back 405

a collection of people that form a group simply because they work in the same place or happen to belong to a mutual organization. To be eligible for group coverage, the group must be a natural group.

Front 406

National Association of Insurance commissioners (NAIC)

Back 406

an association of insurance commissioners in the various states. Actively proposes model laws that standardize policies and promote fair trade practices in the insurance industry.

Front 407

Trust

Back 407

a legal entity established to own and hold property or assets for the benefit of another person or people.

Front 408

Master policy

Back 408

in a group life policy, the master policy indicates the sponsor as policy owner and premium payor.

Front 409

Entire contract provision

Back 409

a life and health policy provision that states that if any guarantees, promises, exclusions, or anything else are not included in the policy (or in the application, if made a part of the policy), then they are not part of the contract.

Front 410

Sponsor

Back 410

in group life insurance, the sponsor is the policyowner and premium payor.

Front 411

Noncontributory plan

Back 411

a category of group health insurance plan that does not require participants to make contributions to the premium for coverage.

Front 412

Contributory plan

Back 412

a category of group health insurance plan that requires participants to make contributions to the premium for coverage.

Front 413

Group health insurance

Back 413

a plan of insurance that an eligible group sponsor, such as an employer, provides for its members. The plan sponsor owns the plan and pays its premiums. The individual group members are the insureds.

Front 414

Conversion privilege

Back 414

in group insurance, the right of an insured to convert from group insurance to individual coverage without having to prove insurability. Also applies to a policyowner’s right in a convertible term insurance policy to exchange the term life insurance policy for a permanent life insurance policy.

Front 415

Multiple employer trusts (MET)

Back 415

a trust of two or more employers that buy group insurance for their employees. Contributions from the employers, employees, or a combination of both are paid into the trust. The trust buys insurance for the benefit of the employees. The trust owns the policy.

Front 416

Absolute assignment

Back 416

the complete transfer of all rights in an insurance policy to a third party; giving up the control of all rights in an insurance policy.

Front 417

Irrevocable beneficiary

Back 417

a beneficiary designation in a life insurance policy that the policyowner cannot change without the beneficiary’s written consent.

Front 418

Viatical settlement

Back 418

the sale of the rights and benefits in an existing life insurance policy to an investor; when a terminally ill person transfers ownership of a life insurance policy to another in return for payment of some amount less than the policy’s death benefit.

Front 419

Credit life insurance

Back 419

life insurance designed to cover the life of a borrower in the amount of his or her outstanding loan. If the borrower dies, then the policy pays the policy’s death benefit to the creditor.

Front 420

Exclusions

Back 420

in life insurance, a risk that is excluded from coverage means that it is not covered; the policy’s benefit will not be paid if death results from that risk.

Front 421

Title page

Back 421

page of the policy identifying the insurance company and the policyowner.

Front 422

Insuring clause

Back 422

the basic agreement between the insured and the company. The clause states the company’s promise to pay the policy’s face amount (death benefit) to the named beneficiary if the insured dies.

Front 423

Entire contract provision

Back 423

a life and health policy provision that states that if any guarantees, promises, exclusions, or anything else are not included in the policy (or in the application, if made a part of the policy), then they are not part of the contract.

Front 424

Natural person

Back 424

an individual, a parent, spouse, or partner in a business relationship.

Front 425

Assignment

Back 425

the transfer of some or all of the owner’s legal rights or interest in an insurance policy to a third person; the transfer of the ownership rights in a life insurance policy from one person to another.

Front 426

Irrevocable beneficiary

Back 426

a beneficiary designation in a life insurance policy that the policyowner cannot change without the beneficiary’s written consent.

Front 427

Absolute assignment

Back 427

occurs when the policyowner permanently transfers all rights in the policy to an assignee.

Front 428

Assignor

Back 428

a person assigning rights in an insurance policy to another person. That person is the assignee.

Front 429

Assignee

Back 429

the person to whom the policyowner assigns the rights in an insurance policy.

Front 430

Collateral assignment

Back 430

when a policyowner pledges his or her life insurance policy to secure a loan. The policy is the collateral.

Front 431

Free-look provision

Back 431

the provision that gives the new policyowner a set period (usually 10 days) in which to review the policy and to decide whether to keep it. The period begins when the policy is delivered to the owner.

Front 432

Automatic premium loan

Back 432

an optional life insurance benefit whose purpose is to prevent a policy from lapsing if the policyowner fails to pay the premium.

Front 433

Grace period

Back 433

the period after the premium due-date during which a policyowner can pay the premium on an insurance policy before the policy lapses. Grace periods are usually 31 days.

Front 434

Reinstatement provision

Back 434

a provision that lets the policyowner place a lapsed policy back in force within a certain period. This period is typically three years.

Front 435

Incontestability clause

Back 435

a provision in an insurance policy that states that after a policy has been in force for a set period, the insurer cannot contest a claim for any reason except for non-payment of premiums. Under most policies, that period is two years.

Front 436

Representation

Back 436

a statement made at the time a contract is formed. This statement persuades a party to enter into the contract.

Front 437

Settlement option

Back 437

provisions in a life insurance policy or annuity that provide the payee with various ways to receive periodic payments of benefits.

Front 438

Peril

Back 438

a condition that involves danger or risk and is the cause of a loss.

Front 439

Standard policy exclusions

Back 439

in life insurance, such exclusions include war, aviation, hazardous occupations and hobbies, and commission of a felony.

Front 440

Suicide provision

Back 440

a provision in nearly all life insurance policies that denies paying the death benefit if, during the first two years following policy issue, the insured commits suicide.

Front 441

Insurable interest

Back 441

for a life insurance contract to be issued, the applicant for the life insurance contract must be expected to suffer a financial loss form the insured’s death. This situation constitutes insurable interest.

Front 442

Primary beneficiary

Back 442

the first person (or class of persons) in line to receive the death benefits.

Front 443

Secondary beneficiary

Back 443

the next person (or class of persons) in the line after the primary beneficiary to receive the policy proceeds.

Front 444

Contingent beneficiary

Back 444

the next person (or class of persons) in line after the primary beneficiary to receive the policy proceeds.

Front 445

Per stripes

Back 445

a beneficiary designation where proceeds of a life insurance policy pass down to the beneficiary’s children if the named beneficiary dies before the insured.

Front 446

Per capita

Back 446

a beneficiary designation where proceeds of the policy are paid only to the beneficiaries who are alive and have been named in the policy. The share of a per capita beneficiary is not passed down to his or her children. Instead, the share is paid to the policy’s other named beneficiaries.

Front 447

Revocable beneficiary

Back 447

a beneficiary in a life insurance policy that has no rights in or to the policy during the insured’s lifetime. The revocable beneficiary has only an expectancy that he or she may receive the death benefit without the beneficiary’s permission.

Front 448

Death benefit

Back 448

the death benefit in a life insurance contract is generally used to provide income for beneficiaries when the insured dies. In this way, the death benefit replaces the deceased insured’s future lost income.

Front 449

Irrevocable beneficiary

Back 449

a beneficiary designation in a life insurance policy that the policyowner cannot change without the beneficiary’s written consent.

Front 450

Policy loan

Back 450

loans of an insurance contract’s cash values.

Front 451

Facility of payment clause

Back 451

allows the insurer to pay the death benefit to someone other than the beneficiary under certain conditions. This clause generally appears in group life or industrial policies.

Front 452

Ordinary life

Back 452

a class of individual life insurance that offers individual coverage in a variety of term (temporary) or permanent plans, in any face amount.

Front 453

Contingent beneficiary

Back 453

the next person (or class of persons) in line after the primary beneficiary to receive the policy proceeds.

Front 454

Common disaster provision

Back 454

identifies how a life policy’s proceeds will be paid if the insured and the primary beneficiary are killed or die in close time proximity. Assumes the insured dies before the beneficiary, so that proceeds are payable to the contingent beneficiary.

Front 455

Primary beneficiary

Back 455

the first person (or class of persons) in line to receive the death benefits.

Front 456

Spendthrift clause

Back 456

a common clause in life insurance policies that states that creditors cannot claim any death proceeds from the policy before the proceeds are paid out to the beneficiary.

Front 457

Dividend options

Back 457

ways to pay out dividends. Policyowners choose which potion they want.

Front 458

Rider

Back 458

an attachment to an insurance policy that changes the benefits either by adding new benefits or by excluding certain benefits from coverage.

Front 459

Nonforfeiture options

Back 459

a guarantee given to the policyowner that prevents the loss of the cash value. This option applies when the policy is surrendered or lapses. The purpose of the option is to identify how the cash value will be used.

Front 460

Cash surrender option

Back 460

under this option, the policy is surrendered and the insurer simply pays the cash value to the policyowner in a lump sum. At that point, the policy is canceled. The insurer’s responsibility under the terms of the contract end. Surrendered policies cannot be reinstates.

Front 461

Extended term insurance option

Back 461

an option under which the insurer applies the cash value of a lapsed policy to buy a term insurance policy. The term insurance is bought in an amount equal to the face amount of the lapsed policy. The term coverage lasts for whatever period the cash value buys.

Front 462

Participating policy

Back 462

a class of life (or health) insurance policy in which the owner is paid a dividend out of the insurance company’s earnings that are available for distribution (the divisible surplus).

Front 463

Paid-up policy

Back 463

a life insurance policy for which all required premiums have been paid, but the policy has not matured. No more premiums are necessary or possible.

Front 464

Participating policy

Back 464

a class of life (or health) insurance policy in which the owner is paid a dividend out of the insurance company’s earnings that are available for distribution (the divisible surplus).

Front 465

Automatic premium loan (APL)

Back 465

an optional life insurance benefit whose purpose is to prevent a policy from lapsing if the policyowner fails to pay the premium.

Front 466

Partial surrenders

Back 466

in a permanent (non-universal) life insurance policy, a partial surrender is the actual surrendering of a portion of the policy. The death benefit under a partial surrender is reduced proportionately by the amount of the surrender.

Front 467

Adjustable life insurance

Back 467

a life insurance policy that lets the policyowner change the three elements of a life insurance policy as often as he or she wants: (1) premium, (2) cash value, and (3) death benefit. In changing these three elements, the policy can function at any one time as a term life policy, an ordinary whole life policy, or a limited payment life policy.

Front 468

Dividend

Back 468

the amount returned to a policyowner out of an insurance company’s surplus funds.

Front 469

Participating policy

Back 469

a class of life (or health) insurance policy in which the owner is paid a dividend out of the insurance company’s earnings that are available for distribution (the divisible surplus).

Front 470

Premium reduction option

Back 470

a dividend option in which the insurance company keeps the dividend and uses it to reduce the next premium due.

Front 471

Accumulation option

Back 471

a dividend option in which the insurance company holds the dividends in an interest-bearing account for the policyowner. The policyowner can withdraw the accumulated dividends and interest at any time.

Front 472

Paid-up additions option

Back 472

a dividend option in which the dividend buys additional paid-up insurance of the same type as the base policy.

Front 473

Combination dividend options

Back 473

a dividend option in which the declared dividend each year buys one-year term insurance. The insurance is bought in an amount equal to the policy’s cash value. Also called Fifth dividend option.

Front 474

Fifth dividend option

Back 474

a dividend option in which the declared dividend each year buys one-year term insurance. The insurance is bought in an amount equal to the policy’s cash value. Also called combination dividend option.

Front 475

Dividend options

Back 475

ways to pay out dividends. Policyowners choose which option they want.

Front 476

Settlement options

Back 476

provisions in a life insurance policy or annuity that provide the payee with various ways to receive periodic payments of benefits.

Front 477

Spendthrift clause

Back 477

a common clause in life insurance policies that states that creditors cannot claim any death proceeds from the policy before the proceeds are paid out to the beneficiary.

Front 478

Lump-sum cash payment

Back 478

payment of insurance policy proceeds in a single (lump) sum.

Front 479

Interest-only option

Back 479

the insurer holds the policy proceeds in an interest-bearing account until a future date selected by the beneficiary (or the policyowner) and pays out just the interest until then.

Front 480

Fixed period settlement option

Back 480

a life insurance settlement option without a life contingency in which either the policyowner or beneficiary selects a payment period. Then the insurer makes payments consisting of both principal (proceeds) and interest over the term of the period.

Front 481

Fixed amount settlement option

Back 481

distributes the death benefit through a series of payments to the beneficiary.

Front 482

Immediate annuity

Back 482

bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump-sum amount of money for a series of monthly income payments.

Front 483

Straight life income option

Back 483

a life insurance settlement option with a life contingency under which the policy’s proceeds are converted into payments that are made for the life of the payee. The payments stop upon his or her death.

Front 484

Life income options

Back 484

a life insurance settlement options with a life contingency. This type of settlement options is based on the lifespan of the payee. Settlement options with life contingencies all have a common element: they involve lifetime income payments.

Front 485

Life income with period

Back 485

a life insurance settlement options with a life contingency under which a payee receives income payments for life. However, he or she is guaranteed that the payments will be made for a specified term.

Front 486

Life income with refund

Back 486

a life insurance settlement option with a life contingency that provides income payments for the life of the payee. If the payee dies before receiving payments equal to the amount placed under the settlement option, then the remainder goes to a contingent payee in the form of a refund.

Front 487

Installment refund option

Back 487

a life insurance settlement option with a life contingency in which income payments continue to a contingent payee in the same amount as were paid to the primary beneficiary. They continue until the amount placed under the settlement option is fully paid out.

Front 488

Cash refund option

Back 488

a life insurance settlement option with a life contingency in which the contingent payee receives a lump sum of any unpaid amounts.

Front 489

Joint and survivor (J&S) life income

Back 489

under the J&S option, monthly payments are made until the second payee (survivor) dies. At that point, income payments stop, unless a period certain also applies (though this is uncommon under the J&S option).

Front 490

Waiver of premium

Back 490

a provision in an insurance policy, sometimes provided by rider, under which the policy’s premiums are waived if the insured becomes totally disabled for a stated period.

Front 491

Nonforfeiture option

Back 491

a guarantee given to the policyowner that prevents the loss of the cash value. This option applies when the policy is surrendered or lapses. The purpose of the option is to identify how the cash value will be used.

Front 492

Own occupation

Back 492

under a health insurance policy using the own occupation definition of total disability, the policy’s benefits are payable if the insured cannot perform the duties of his or her own regular occupation.

Front 493

Waiver of stipulated premium

Back 493

in UL policies, waives a preset premium payment amount if the insured becomes disabled for at least six months.

Front 494

Waiver of cost of insurance

Back 494

in UL policies, waives only the cost of insurance that is deducted monthly from the policy’s cash value.

Front 495

Disability income benefit rider

Back 495

pays a certain sum of monthly income to the insured if he or she becomes disabled.

Front 496

Total disability

Back 496

the condition for which total disability benefits are payable as defined in a disability policy. Disability policies define total disability in different ways. A total disability provision can be an “own occupation” definition, an “any occupation” definition, or a hybrid definition.

Front 497

Payor benefit

Back 497

commonly associated with juvenile insurance, this benefit pays the policy premium when the policy owner becomes disabled or dies.

Front 498

Additional insured riders

Back 498

see other insured life rider.

Front 499

Other insured life rider

Back 499

covers someone other than the base policy insured. These riders typically take the form of term insurance. Many people buy such riders rather than buying permanent policies on each person. Common other insured term riders are children’s term rider and family term rider.

Front 500

Accelerated benefits riders

Back 500

pays out part or all of the policy’s face value while the insured is still living. In this way, the benefit is “accelerated”. Most of these riders pay less than the full face value as an accelerated benefit.

Front 501

Disclosure

Back 501

statements that identify the kind of information that will be gathered about the applicant. The disclosures also include how the information will be used and shared for the purposes of evaluating and issuing a policy.

Front 502

Long-term care

Back 502

a broad term that includes a wide range of assistance, services, or devices provided over an extended period. Long-term care is designed to meet medical, personal, ad social needs in a variety of settings or locations to enable a person to live as independently as possible. Such care may involve custodial care, intermediate care, or skilled nursing care.

Front 503

Long-term care rider

Back 503

provides financial support for the costs of medical care, nursing home care, and assisted living care for extended durations.

Front 504

Home health care

Back 504

a type of long-term care received in the home. May include part-time nursing care, speech or physical therapy, and the services of home health aides.

Front 505

generalized (or independent) option

Back 505

Under this option, the LTC rider benefits are separate from the life policy death benefit. Benefits paid to the insured do not affect the life policy's face amount. The beneficiary receives the full death benefit when the insured dies. This rider comes at a higher cost than the integrated option since it provides benefits in addition to the policy’s death benefit.

Front 506

integrated option

Back 506

Under this option, the LTC benefits are linked to the life insurance policy's face amount. The LTC benefits paid out are drawn from the life insurance policy's face amount. Up to 70 to 75 percent, or so, of the face amount can be used for long-term care expenses. The beneficiary receives the remainder as the death benefit. (In this way, the LTC integrated option is similar to the accelerated death benefit rider.) This rider comes at a modest cost and may even be included at no charge as part of the accelerated benefit provision.

Front 507

Chronically ill

Back 507

a term describing a person with an illness that is a permanent or residual disability, requires rehabilitation training, or requires a long period of supervision, observation, or care.

Front 508

Guaranteed insurability rider

Back 508

guarantees that the policyowner can buy additional permanent life insurance on the insured’s life in the future; sometimes called a purchase option rider or an additional insurability option rider.

Front 509

Purchase option rider

Back 509

see guaranteed insurability rider.

Front 510

Additional insurability option rider

Back 510

see guaranteed insurability rider.

Front 511

Net amount at risk

Back 511

the difference between a life insurance policy’s cash value and the policy’s death benefit.

Front 512

Accidental death benefit rider

Back 512

designed to provide an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or triple the amount of the base policy’s face value.

Front 513

Double indemnity

Back 513

designed to provide an additional amount of insurance if the insured dies as a result of an accident. The additional amount is typically double or triple the amount of the base policy’s face value.

Front 514

Paid-up additions

Back 514

a dividend option in which the dividend buys additional paid-up insurance of the same type as the base policy.

Front 515

Cost-of-living (COL) rider

Back 515

gives the policyowner the option to increase the face amount on his or her policy to fight inflation. This type of rider is tied to an inflation index such as the Consumer Price Index (CPI).

Front 516

Return of premium rider

Back 516

pays to the owner of a term policy all or a portion of premiums paid if the insured is alive at the end of the policy term. The returned premiums do not include interest.

Front 517

Term rider

Back 517

can be added to any policy to increase the death benefit payable if the insured dies during the specified term. Term riders are pure death benefit they have no cash value or other living benefits associated with them.

Front 518

Term insurance

Back 518

a class of insurance, term coverage is temporary, applying only for a limited period. At the end of that period, the policy expires. The policy pays a death benefit only if the insured dies during the term. The term can be defined in years or by the age of the insured.

Front 519

Living benefits

Back 519

the funds from cash values that life insurance provides; these cash values are used during the insured’s lifetime.

Front 520

Spendthrift clause

Back 520

a common clause in life insurance policies that states that creditors cannot claim any death proceeds from the policy before the proceeds are paid out to the beneficiary.

Front 521

Viatical settlement

Back 521

the sale of the rights and benefits in an existing life insurance policy to an investor; when a terminally ill person transfers ownership of a life insurance policy to another in return for payment of some amount less than the policy’s death benefit.

Front 522

Viatical settlement provider

Back 522

in a viatical settlement, the third-party to whom the chronically or terminally ill policyowner sells his or her life insurance policy.

Front 523

Viator

Back 523

the insured in a viatical settlement.

Front 524

Viatical settlement purchaser

Back 524

an investor who funds a viatical settlement on behalf of the viatical settlement provider.

Front 525

Viatical settlement broker

Back 525

arranges the agreement between the viatical settlement purchaser, provider, and viator. The broker works on behalf of the viator in this agreement.

Front 526

Chronically ill

Back 526

a term describing a person with an illness that is a permanent or residual disability, requires rehabilitation training, or requires a long period of supervision, observation, or care.

Front 527

The Fraudulent Viatical Settlements Model Act

Back 527

codifies the rules by which viatical settlements may be advertised, sold, or set up.

Front 528

Human life value approach

Back 528

developed by Dr. Solomon S. Huebner, this approach is one of the first systems for determining how much life insurance is appropriate for a person. Involves estimating a person’s personal earnings each year to retirement. Then the costs of self-maintenance and income taxes are deducted. The result is residual income that is set aside to provide for family members. The residual income stream is discounted to its present value. The present value thus determined is the value of that human life.

Front 529

Needs approach

Back 529

an approach for determining how much life insurance is appropriate for a person. This approach determines personal life insurance needs based on a detailed review of each person’s specific situation. It mandates that the person’s and family’s income, liabilities, and assets be examined to calculate the right amount of life insurance.

Front 530

Buy-sell agreement

Back 530

an agreement in which someone agrees to buy a deceased business owner’s interest in the business upon the owner’s death. These agreements are typical for small businesses, such as partnerships or close corporations.

Front 531

Insured buy-sell agreement

Back 531

when life insurance is bought to provide the funds to support a buy-sell agreement.

Front 532

Cross-purchase buy-sell agreement

Back 532

a type of buy-sell agreement that is a contract between individual partners or shareholders. In this agreement, the partners or shareholders agree to buy the interest of the other(s) in the event the individual(s) dies or withdraws from the business.

Front 533

Entity plan

Back 533

a type of buy-sell agreement in which the business itself is a party to the agreement. In this plan, the business buys the interest or shares of a deceased partner or shareholder. The business can be a partnership of a close corporation.

Front 534

Stock redemption agreement

Back 534

the name of the agreement when a close corporation buys the interest or shares of a deceased partner or shareholder.

Front 535

Key person life insurance

Back 535

when a business applies for, owns, and is the beneficiary of the policy covering the life of a key employee.

Front 536

Executive bonus plan

Back 536

a plan under which an employer agrees to pay some or all of the premiums on a life insurance policy an executive owns. The employer can deduct the premium payments as compensation paid to an employee.

Front 537

Deferred compensation plan

Back 537

a benefit plan under which an employee, normally a senior executive, agrees to defer a portion of his or her salary or some element of his or her compensation until a future point.

Front 538

Salary continuation play (SERP)

Back 538

a nonqualified plan that provides benefits to select employees above and beyond those provided through qualified retirement plans.

Front 539

Split-dollar plan

Back 539

an arrangement under which a permanent life insurance policy is bought on the life of a key executive. Either the executive or the employer owns the policy. The premiums for the policy and the death benefits provided under it are split between the employer and the key executive (or other third party).

Front 540

Corporate-Owned Life Insurance (COLI)

Back 540

a business life insurance plan that typically covers lower level employees who are insured for the benefit of the corporation. Such a plan is usually reserved for very large corporate employers or organizations. Under a COLI plan, the corporation takes out and owns individual policies on individual employees. It names itself as the beneficiary. At the death of the individual employee, the company receives the benefit.

Front 541

Annuity owner

Back 541

the person (or entity) who buys the contract (annuity).

Front 542

Annuitant

Back 542

the person an annuity owner chooses to receive the periodic annuity payments when the contract annuitizes.

Front 543

Annuitization

Back 543

the process in which the funds in an annuity are turned into a series of ongoing, periodic income payments.

Front 544

Accumulation period

Back 544

in an annuity, the period during which premium funds are paid into the annuity contract.

Front 545

Annuity payout period

Back 545

the period during which funds are paid out from the annuity in the form of periodic income payments.

Front 546

guaranteed income rider

Back 546

ensures that the annuitant will receive a regular payment every month, quarter, or year. The annuitant funds it with a single lump-sum premium from which payments are made. This type of rider can help provide retirement income for the annuitant.

Front 547

death benefit rider

Back 547

guarantees that if an annuitant dies before annuity payments begin, or soon after the distributions begin, a beneficiary will receive at least the balance of the premiums paid. This can be paid to the beneficiary in a lump-sum payment or over the balance of the period for which the payments were scheduled.

Front 548

return of premium rider

Back 548

ensures that the annuitant will get back at least the amount paid for the premium. This rider guarantees that he or she will receive no less than the amount invested in the contract.

Front 549

Variable annuity

Back 549

a form of annuity for which the insurer makes no guarantee as to the annuity principal or the credited interest rate. Variable annuity premiums and contract values are invested in the insurer’s separate accounts instead of its general account. The contract’s values move up and down in response to the investment performance of the separate accounts and their associated stock, bond, and money-market portfolio subaccounts.

Front 550

Annuity purchase rates

Back 550

the amount of on-going income that $1,000 of the annuity contract value buys.

Front 551

Annuity owner

Back 551

the person (or entity) who buys the contract (annuity).

Front 552

Natural person

Back 552

an individual, a parent, spouse, or partner in a business relationship.

Front 553

Non-natural person

Back 553

a corporation or trust.

Front 554

Annuitant-driven contracts

Back 554

annuity contracts that pay out their values when the annuitant dies.

Front 555

Owner-driven contracts

Back 555

annuity contracts that pay out their values when the owner dies.

Front 556

Immediate annuities

Back 556

bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump-sum amount of money for a series of monthly income payments.

Front 557

Single premium immediate annuity (SPIA)

Back 557

bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump-sum amount of money for a series of monthly income payments.

Front 558

Single premium deferred annuity (SPDA)

Back 558

an annuity whose money grows within the contract until the owner accesses the funds or the contract annuitizes. Once a person buys the SPDA, no additional premium payments are accepted.

Front 559

Fixed premium deferred annuities

Back 559

an annuity whose owner makes on-going, fixed and level premium deposits of specific amounts. The owner makes these deposits at specified times (annually, quarterly, monthly) during the contract’s accumulation period. This annuity type provides a specific amount of future income. Also called retirement annuity.

Front 560

Flexible premium deferred annuities

Back 560

these contracts allow the owner to make premium deposits of any amount whenever he or she wants. However, a certain minimum amount may be required.

Front 561

Surrender charges

Back 561

a charge imposed on the early surrender of or withdrawal of funds from a universal life insurance policy. The purpose of the surrender charge is to enable the insurer to recover the costs it incurs in selling and underwriting the policy. A surrender charge is sometimes referred to as a contingent deferred sales charge.

Front 562

Deferred annuity

Back 562

make their income payouts several years after a person buys the contract. During these years, funds accumulate and grow within the contract on a tax-deferred basis. These funds belong at all times to the contract owner.

Front 563

Owner-driven contracts

Back 563

annuity contracts that pay out their values when the owner dies.

Front 564

Annuitant-driven contracts

Back 564

annuity contracts that pay out their values when the annuitant dies.

Front 565

Life income with period certain

Back 565

a life insurance settlement option with a life contingency under which a payee receives income payments for life. However, he or she is guaranteed that the payments will be made for a specified term.

Front 566

Pure life income option

Back 566

in an annuity, a life contingency payout option in which the annuitant is paid an income for his or her lifetime, regardless of how long the owner lives. At the owner’s death, no further payments are made to anyone the contract ends.

Front 567

Straight life income option

Back 567

a life insurance settlement option with a life contingency under which the policy’s proceeds are converted into payments that are made for the life of the payee. The payments stop upon his or her death.

Front 568

Joint and last survivor life income option

Back 568

an annuity payout option under which an income is paid until the second of the two annuitants dies. Upon the second death, no further payments are made to anyone.

Front 569

Joint and 100% survivor

Back 569

This option pays a monthly sum to two people. Upon the death of the first, the survivor continues to receive the same amount for his or her life.

Front 570

Joint and two-thirds survivor

Back 570

After the death of the first annuitant, the monthly payments made to the survivor are reduced to two-thirds of the original amount.

Front 571

Joint and one-half survivor

Back 571

The survivor's income is reduced to one-half of the original amount.

Front 572

Period certain options

Back 572

an annuity payout option without a life contingency. Payments are made over a set number of years or in specified amounts and then end. Also called a term certain option.

Front 573

Fixed annuity

Back 573

an annuity contract in which the insurer guarantees both the annuity principal and a specified rate of interest to be credited to the contract. These guarantees are backed by the financial strength and claims-paying ability of the insurer issuing the contract.

Front 574

Guaranteed minimum rates

Back 574

one of two interest rate levels for a fixed annuity. (The other is current declared rate.) This rate is usually low and extends for the life of the contract.

Front 575

Current declared rate

Back 575

one of two interest rate levels for a fixed annuity. (The other is guaranteed minimum.) This rate is subject to change periodically and is based on the insurer’s investment results and on the economic climate.

Front 576

Two-tiered fixed annuity

Back 576

a variation on the standard fixed annuity has a higher level of interest crediting than most traditional fixed annuities, provided the contract owner keeps the product and chooses to annuitize it. However, a lower rate is applied if the contract owner surrenders the annuity and takes its values in a lump sum instead of annuitizing. If he or she does that, then this lower rate of interest is retroactively applied back to the date the contract was bought.

Front 577

Annuity purchase rate

Back 577

the amount of on-going income that $1,000 of the annuity contract value buys.

Front 578

Fixed annuity

Back 578

an annuity contract in which the insurer guarantees both the annuity principal and a specified rate of interest to be credited to the contract. These guarantees are backed by the financial strength and claims-paying ability of the insurer issuing the contract.

Front 579

General account

Back 579

the basic account in which an insurance company maintains the funds that support its fixed life insurance and annuity products. The general account’s conservative investments allow the insurer to guarantee interest returns on its fixed insurance and annuity products.

Front 580

Variable annuity

Back 580

a form of annuity for which the insurer makes no guarantee as to the annuity principal or the credited interest rate. Variable annuity premiums and contract values are invested in the insurer’s separate accounts instead of its general account. The contract’s values move up and down in response to the investment performance of the separate accounts and their associated stock, bond, and money-market portfolio subaccounts.

Front 581

Variable life insurance

Back 581

a form of permanent whole life insurance in which premiums are placed in investment sub-accounts that the policyowner owns. The insurer guarantees a minimum death benefit, usually the face amount of the policy at issue. However, the cash values and the death benefit rise and fall on the basis of the sub-account’s investment performance.

Front 582

Subaccount

Back 582

investment accounts into which VLI policy values are invested. Sub-accounts are unsecured and nonguaranteed.

Front 583

Accumulation units

Back 583

the growth of a variable annuity’s funds or value during its accumulation period is measured in terms of accumulation units. When the annuity owner makes premium deposit and allocates them among the contract’s subaccounts, they are used to buy accumulation units. These purchases are then credited to the owner’s contract.

Front 584

Annuitization

Back 584

the process in which in the funds in an annuity are turned into a series of ongoing, periodic income payments.

Front 585

Live with period certain

Back 585

an annuity payout option that guarantees that income is paid for the length of the annuitant’s life. However, the income is paid but for no less than a certain number of years. So if the annuitant dies before the chosen term period ends, then income payments continue to his or her beneficiary for the balance of the period.

Front 586

Assumed interest rate (AIR)

Back 586

the rate of interest or rate of return that an annuity contract’s values are assumed to earn over the Annuitization period. The AIR is usually in the range of 3 to 5 percent.

Front 587

Annuity units

Back 587

after the first payment under a variable annuity is made, the payment is converted into annuity units. For the second and all future income payments, the amount of each monthly payment is determined by multiplying the annuity units by the latest revalued amount of those units.

Front 588

Fund management fees

Back 588

one of the three types of charges and fees common to variable annuities (the others are fund management fee and account contract fee). These charges cover the cost of managing and administering the separate subaccount investment portfolios.

Front 589

M&E

Back 589

one of the two types of charges and fees common to variable annuities (the other is fund management fee). These are the insurance-related costs for a variable annuity. They cover the cost of the contract’s death benefit.

Front 590

Equity-indexed annuities (EIAs)

Back 590

a type of annuity contract that allows contract owners to participate in some of the growth in the stock market while avoiding possible losses to principal. EIAs are commonly linked to the S&P 500 or Dow Jones Index.

Front 591

Rate cap

Back 591

in relation to an EIA, a rate cap is the maximum interest rate that is applied to the funds in the EIA if the percent of change in the index is greater than the cap.

Front 592

EIA participation rate

Back 592

the percentage of the index increase that is actually credited to an annuity. These rates typically range from 60% to 90%.

Front 593

Fixed annuity

Back 593

an annuity contract in which the insurer guarantees both the annuity principal and a specified rate of interest to be credited to the contract. These guarantees are backed by the financial strength and claims-paying ability of the insurer issuing the contract.

Front 594

Market-value adjusted (MVA) annuity

Back 594

a fixed annuity that offers an interest rate adjustment feature. This feature lets the owner take advantage of interest crediting changes in response to market conditions at the time he or she withdraws funds.

Front 595

National Association of Insurance Commissioners (NAIC)

Back 595

an association of insurance commissioners in the various states. Actively proposes model laws that standardize policies and promote fair trade practices in the insurance industry.

Front 596

Settlement option

Back 596

provisions in a life insurance policy or annuity that provide the payee with various ways to receive periodic payments of benefit.

Front 597

Exclusion ration

Back 597

applied to each annuity payment to determine the portion that is excluded from tax.

Front 598

403(b) plans

Back 598

a retirement plan reserved for non-profit organizations and their employees. Both employer and/or employee contribute funds into the plan. The funds are directed into individual accounts set up for each participating employee. The contributions are not taxable to the employee when they are made. Rather, they grow tax-deferred until they are distributed. Also called a tax-sheltered annuity plan (TSA).

Front 599

Group annuity

Back 599

has the same features as an individual annuity except that it is written on a group basis.

Front 600

Structured settlement annuities

Back 600

an annuity used to distribute funds from the settlement of lawsuits or from the winnings of state lotteries.

Front 601

guaranteed minimum accumulation benefit (GMAB) rider

Back 601

A GMAB rider guarantees that the VA’s accumulated value will be at least equal to the sum of premiums paid after a specified period of time (typically five to ten years) minus previous withdrawals. Some insurers include the ability to lock in gains in the accumulation value at that point in time, so that thereafter the guaranteed minimum accumulation value equals the sum of premiums paid plus the locked-in gains

Front 602

guaranteed minimum withdrawal benefit (GMWB) rider

Back 602

With this rider, the contract owner can withdraw an amount at least equal to the sum of premiums paid. Annual withdrawals are usually limited to a specified percentage (e.g., 5 to 10 percent) of total premiums paid.

Front 603

guaranteed minimum income benefit (GMIB) rider

Back 603

This rider provides a guaranteed minimum life income regardless of the contract’s accumulated value. It adds a growth factor that assures a guaranteed minimum account value. At a specified future date, the deferred

Front 604

guaranteed lifetime withdrawal benefit (GLWB) rider

Back 604

With this rider, the contract owner receives a lifetime income without having to convert to an immediate annuity. This rider usually lets the owner access undistributed contract values in addition to the income payments already received, though doing so will diminish income withdrawals thereafter (since the remaining account balance from which they are drawn will be decreased).

Front 605

Nonqualified annuities

Back 605

annuities that are not used to fund a qualified plan, such as an IRA or 403(b) plan.

Front 606

Transfer-for-value rule

Back 606

applies when life insurance policies are sold or transferred to another party for valuable consideration. In such cases, the beneficiary may be subject to income tax when the death benefits are paid.

Front 607

Gain

Back 607

the portion of the benefit includible in the beneficiary’s income for tax purposes.

Front 608

Universal life insurance

Back 608

an extremely flexible life insurance policy in which the policyowner can, within certain limits, increase premiums, reduce premiums, or pay no premiums. Similarly, the policyowner can increase the benefit paid at death (subject to evidence of insurability) or can decrease it. The three factors central to the policy (mortality, expenses, and interest) are separate elements.

Front 609

Partial surrender

Back 609

in a permanent (non-universal) life insurance policy, a partial surrender is the actual surrendering of a portion of the policy. The death benefit under a partial surrender is reduced proportionately by the amount of the surrender.

Front 610

Accelerated benefits rider

Back 610

pays out part or all of the policy’ face value while the insured is still living. In this way, the benefit is “accelerated”.

Front 611

Viatical settlement

Back 611

the sale of the rights and benefits in an existing life insurance policy to an investor; when a terminally ill person transfers ownership of a life insurance policy to another in return for payment of some amount less than the policy’s death benefit.

Front 612

Long-term care rider

Back 612

provides financial support for the costs of medical care, nursing home care, and assisted living care for extended durations.

Front 613

Modified endowment contract

Back 613

a category of life insurance policy that fails to meet the 7-pay test imposed by the federal government. Because of that, a MEC loses some, but not all, of the favorable tax treatment normally given to life insurance policies.

Front 614

7-pay test

Back 614

to be considered a life insurance policy, the policy must meet the terms of this test. Applies specifically to the premiums paid into a contract during its first seven years. If this amount exceeds the net level premiums that would have been required to produce paid-up future benefits (i.e., a paid-up policy) after seven level annual payments are made, then the policy is a MEC.

Front 615

Last in first out (LIFO)

Back 615

in an annuity, LIFO is how withdrawals are treated. Premium payments are made first; then interest accrues on top of that amount. So earned interest is the “last in” part of the equation. And because the earned interest is “last in,”accuring”ontop” of the principal, the interest is also the first out when a withdrawal is made.

Front 616

COLI

Back 616

a business life insurance plan that typically covers lower level employees who are insured for the benefit of the corporation. Such a plan is usually reserved for very large corporate employers or organizations. Under a COLI plan, the corporation takes out and owns individual policies on individual employees. It names itself as the beneficiary. At the death of the individual employee, the company receives the benefit

Front 617

Master policy

Back 617

in a group life policy, the master policy indicates the sponsor as policy owner and premium payor.

Front 618

Group life insurance

Back 618

a life insurance policy that covers multiple non-related people.

Front 619

Annuity

Back 619

a cash contract between a person (the annuity owner) and a life insurance company (the annuity issuer). The annuity is set up to accumulate and/or distribute a sum of money.

Front 620

Nonqualified annuities

Back 620

annuities that are not used to fund a qualified plan, such as an IRA or 403(b) plan.

Front 621

Immediate annuity

Back 621

bought to regularly distribute income. A person who buys an immediate annuity exchanges a lump-sum amount of money for a series of monthly income payments.

Front 622

Annuitization

Back 622

the process in which the funds in an annuity are turned into a series of ongoing, periodic income payments.

Front 623

Qualified annuity

Back 623

annuities used to fund a qualified plan; qualified annuities are taxed according to the rules that govern the plan.

Front 624

TSA

Back 624

a retirement plan reserved for non-profit organizations and their employees. Both employer and/or employee contribute funds into the plan. The funds are directed into individual accounts set up for each participating employee. The contributions are not taxable to the employee when they are made. Rather, they grow tax-deferred until they are distributed. Also called a tax-sheltered annuity plan (TSA).

Front 625

Qualified retirement plan

Back 625

a formal retirement plan set up by an employer to provide its employees with future benefits. It does so in a way that meets certain IRS-imposed requirements. By meeting these qualifying standards, the plan is granted advantageous tax treatment. Such tax treatment favors both the employer and the employees.

Front 626

Natural persons

Back 626

an individual, a parent, spouse, or partner in a business relationship.

Front 627

Gain

Back 627

the portion of the benefit includible in the beneficiary’s income for tax purposes.

Front 628

Old age, survivors, and disability insurance program (OASDI)

Back 628

provides monthly benefits to qualified retired and disabled workers and their dependents, and to survivors of insured workers. Eligibility and benefit amounts are determined by the worker’s contributions to Social Security.

Front 629

Medicare

Back 629

a federal health insurance program designed specifically for people age 65 and over and for certain disabled persons. Medicare is funded by payroll taxes. It extends the Social Security program beyond retirement, disability, and survivor benefits into the field of medical expense benefits. Coverage provided under Medicare is divided into four parts: A through D.

Front 630

Taxable wage base

Back 630

the amount of one’s wages that is subject to OASDI tax.

Front 631

Quarter of coverage (QCs)

Back 631

the basic units for determining whether a worker is covered under Social Security. A worker receives one quarter of coverage for a certain dollar amount of wages earned.

Front 632

Currently insured

Back 632

an insured status under Social Security that entitles the worker to certain survivor benefits. Survivor benefits are those that are payable to the worker’s family if he or she dies. To be considered currently insured, a worker must have six quarter of coverage in the 13-quarter period before death.

Front 633

Death benefits

Back 633

the death benefit in a life insurance contract is generally used to provide income for beneficiaries when the insured dies. In this way, the death benefit replaces the deceased insured’s future lost income.

Front 634

Fully insured status

Back 634

an insured status under Social Security that entitles a worker to full OASDI benefits. Workers born after 1928 must have 40 quarters of coverage to be considered fully ensured.

Front 635

Average indexed monthly earnings (AIME)

Back 635

the amount of Social Security OASDI benefits that any one covered worker is entitled to is a function of the person’s average indexed MONTHLY EARNINGS. These earnings are the average of a worker’s lifetime earnings on which FICA taxes were imposed.

Front 636

Federal Insurance Contributions Act (FICA)

Back 636

this act is the enabling legislation that grants the federal government the right to collect a portion of workers’ wages (through payroll taxes) to fund Social Security benefits. FICA taxes are also termed “OASDI-HI” taxes.

Front 637

Full retirement age (FRA)

Back 637

the age at which full Social Security retirement benefits are payable.

Front 638

Retirement benefit earnings test

Back 638

an earnings limit that is imposed if a person elects to receive Social Security benefits before he or she reaches FRA and, at the same time, continues to work and earn money. Social Security benefits are reduced for amounts earned over this limit.

Front 639

Primary insurance amount (PIA)

Back 639

the amount of the retirement benefit the worker will receive when he or she reaches full retirement age, and it is the starting point for determining all other Social Security benefits. It is the basis for benefits payable to the worker’s family and dependents.

Front 640

Modified adjusted gross income

Back 640

income calculated to determine if a recipient’s Social Security benefits are subject to income tax. Modified adjusted gross income includes earnings, pension benefits, dividend taxable investment earnings, interest on tax-exempt bonds, and one-half of the Social Security benefits. Any income over these levels may be subject to up to 85% of the Social Security benefits to tax.

Front 641

Pre-tax dollars

Back 641

employee contributions made directly into a qualified retirement plan before income taxes are assessed.

Front 642

401(k)

Back 642

one of the most popular types of qualified employer plans. 401(k)s are a form of defined contribution plan that allows both employer and employees to contribute to the plan. Employees can defer part of their wages into the plan. These deferrals are not included in the employee’s gross income. As a result, they are not taxed.

Front 643

SIMPLE plans

Back 643

designed solely for small businesses and are known formally as “Savings Incentive Match Plan for Employees.” Employees who choose to participate can defer up to a specified amount of their compensation each year. These amounts are not subject to tax. The employer then makes a matching dollar-for-dollar contribution, up to 3% of the employee’s annual compensation.

Front 644

SEP

Back 644

a form of defined contribution plan under which an employer sets up individual retirement accounts (IRAs) for each participating employee. The employer makes contributions to these accounts on behalf of the employee. These contributions into an employee’s SEP are not included in the employee’s gross income.

Front 645

Defined benefit plan

Back 645

a type of qualified employer plan in which the employer makes contributions to provide a specified benefit at the participants’ retirement.

Front 646

Qualified retirement plan

Back 646

a formal retirement plan set up by an employer to provide its employees with future benefits. It does so in a way that meets certain IRS-imposed requirements. By meeting these qualifying standards, the plan is granted advantageous tax treatment. Such tax treatment favors both the employer and the employees.

Front 647

Defined contribution plan

Back 647

a type of qualified retirement plan that defines the contributions that an employer makes on an employee’s behalf. The benefit the employee finally receives at retirement will be whatever the contributions, plus their interest earnings, grow to.

Front 648

Profit-sharing plan

Back 648

a form of defined contribution plan that allows employees to share in the profits of the employer. The employer is the sole contributor to the plan. The contributions are calculated using a pre-determined formula.

Front 649

Catch-up contributions

Back 649

additional amounts that 401(k) participants age 50 and older can choose to defer into their 401(k).

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Matching contributions

Back 650

a provision in most 401(k) plans that allows employers to match every $1 employee contribution with a 50 cent or more contribution.

Front 651

Simplified employee pension (SEP) plan

Back 651

a form of defined contribution plan under which an employer sets up individual retirement accounts (IRAs) for each participating employee. The employer makes contributions to these accounts on behalf of the employee. These contributions into an employee’s SEP are not included in the employee’s gross income.

Front 652

403(b) plan

Back 652

a retirement plan reserved for non-profit organizations and their employee. Both employer and/or employee contribute funds into the plan. The funds are directed into individual accounts set up for each participating employee. The contributions are not taxable to the employee when they are made. Rather, they grow tax-deferred until they are distributed. Also called a tax-sheltered annuity plan (TSA).

Front 653

457 plans

Back 653

qualified retirement plans reserved for employees of state and local government units. Under these plans, eligible employees are allowed to make elective salary deferrals into the plan on a pre-tax basis. Earnings accumulate tax-deferred. Neither the contributions made to the plan nor their earnings are taxed until they are withdrawn or distributed.

Front 654

Pre-tax dollars

Back 654

employee contributions made directly into a qualified retirement plan before income taxes are assessed.

Front 655

SAR-SEP

Back 655

a salary-reduction SEP; no longer allowed to be set up as of 1997. However, those already in place can continue to operate. Employee contributions are deferred into the plan instead of being paid out as a current (taxable) compensation. This feature is life that of a 401(k). The limit on employee contributions to a SAR-SEP is the same as those for a 401(k) and other elective deferral plans.

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Matching contribution

Back 656

a provision in most 401(k) plans that allows employers to match every $1 employee contribution with a 50 cent or more contribution.

Front 657

Keogh plan

Back 657

a qualified retirement plan designed for unincorporated businesses (sole proprietorships and partnerships) that allows the business owner or partner to participate in the plan as an “employee.” Keogh plans can be set up as either a defined benefit plan or a defined contribution plan. Keoghs are treated the same way as corporate plans with respect to maximum contribution benefit limits, participation and coverage requirements, and nondiscrimination in coverage, contributions, and benefits.

Front 658

Defined benefit plan

Back 658

a type of qualified employer plan in which the employer makes contributions to provide a specified benefit at the participants’ retirement.

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Defined contribution plan

Back 659

a type of qualified retirement plan that defines the contributions that an employer makes on an employee’s behalf. The benefit the employee finally receives at retirement will be whatever the contributions, plus their interest earnings, grow to.

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Roth IRAs

Back 660

an alternative to a traditional IRA, Roth IRAs provide for “back-end” benefits. This means that contributions to a Roth account cannot be deducted and are taxed. But the earnings on those contributions, when withdrawn, are entirely tax-free.

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Rollover IRA

Back 661

transferring funds from one qualified account or traditional IRA to another qualified account or IRA. Received funds must be rolled over within 60 days to avoid current income taxation.

Front 662

Roth conversion

Back 662

converting a traditional IRA to a Roth IRA.

Front 663

Prepaid tuition plan

Back 663

a form of Section 529 plan (along with college savings plans) set up to “pre-pay” a child’s education. These plans guarantee a regular plan of savings will mature to guaranteed paid semesters of college. Future college tuition can be “locked in” at today’s prices.

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Section 529 plan

Back 664

a qualified retirement plan whose goal is to provide a way to save and invest in a tax-favored way for a child’s college education.

Front 665

College savings plan

Back 665

a form of Section 529 plan (along with pre-paid tuition plans) that builds funds for college in a tax-advantaged way. This plan takes the form of a state-managed investment account. To this account, parents (or grandparents) can contribute funds. When the funds are withdrawn, they and the interest they earned are not taxable.

Front 666

Prepaid tuition plans

Back 666

a form of Section 529 plan (along with college savings plans) set up to “pre-pay” a child’s education. These plans guarantee a regular plan of savings will nature to guaranteed paid semesters of college. Future college tuition can be “locked in” at today’s prices.