Life Insurance Glossary

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Abandon An application that's been closed without being issued due to missing requirements or information.

Absolute assignment Life insurance policy to which all rights have been transferred irrevocably to another party.

Accidental death benefit (ADB) A supplementary benefit rider in addition to the face amount of a life insurance policy, payable if the insured dies as a result of an accident.

Accidental death & dismemberment (AD&D)
A supplementary benefit that adds money to the life insurance policy if the insured dies, loses any two limbs, or loses sight in both eyes as a result of an accident.

Actuary A technical expert in insurance math, theory, and practice who sets premium rates and calculates life expectancy.

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Accumulation account ? Cash value fund within a permanent insurance policy to which interest is credited and from which mortality and expenses are deducted.

Additional insured rider (AIR) ? A rider that provides level term insurance for an additional insured.

Agent ? Individual licensed by the state and appointed by an insurance company to solicit insurance, deliver policies, and collect premiums.

Agent of record ? An agent recognized by a company as its representative on a particular policy.

Agent's statement ? The section of an insurance application where the agent includes his/her knowledge of the proposed insured that's not reported by the applicant.

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Annuitant ? The one to whom an annuity is payable.

Annuity ? A policy providing a stipulated sum payable at regular intervals during the lifetime of one or more people, or payable for a specified period of time.

Applicant ? The individual applying for a life insurance policy.

Application ? A form supplied by the insurance company, generally completed by the agent with information from the applicant. It's signed by the applicant and is part of the contract if a policy is issued. Underwriters use the application to decide if a life policy will be issued and, if so, at what classification and premium rate.

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

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Assignment ? (1) Transferring some or all ownership rights in a policy from one party to another. (2) The document that causes the transfer of ownership rights to go into effect.

Assignor ? The person or party who transfers certain contractual rights under an absolute or collateral assignment.

Associate customer service (ACS) ? A Life Office Management Association (LOMA) designation received after completing a series of life insurance courses.

Attained age ? The current age of the insured. The insured's age at the issue date of the policy plus the number of years since the policy was issued.

Attending physician's statement (APS) ?
A written statement from a physician who has treated an insured. It gives the insurance company information relevant to underwriting risk or settling a claim.

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Automatic increase benefit (AIB) ? Provides annual increases to the base plan principal sum.

Automatic premium loan (APL) ? A loan provision that automatically pays any premiums that are in default at the end of the grace period. The loan charges the premium amount to the policy as a policy loan if the premium doesn't exceed the policy's cash surrender value on the due date of the premium. It's computed on the assumption that the premium has been paid.

Awaiting delivery requirements (ADR) ? The policy needs additional nonmedical information or requirements before it's put in force.

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Backdating ? Dating the policy prior to the date shown on the application to utilize an age younger than the current age of the insured. Policies can be backdated up to six months to reduce the policy premium.

Base coverage ? Primary life insurance coverage to which riders and/or benefits may be attached.

Beneficiary ? Party or entity to whom the proceeds of a life insurance contract are payable if the insured dies.

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Cash surrender value ? The net amount of proceeds an insured would receive upon the surrender of an insurance policy after deductions for loans, acquisition charges, and other applicable charges. The amount decreases over time on many policies.

Cash value ? The amount of cash credited within a permanent insurance contract. See accumulation amount.

Chargeback ? A deduction on the agent's folio to recover commissions for various reasons (returned checks, paid in error, etc.).

Child insurance rider (CIR) ? A rider on a base policy that provides term insurance on the life of any covered child until age 21, at which time the policy may be converted to an individual life policy.

Chartered life underwriter (CLU) ? A national designation received after completing a series of insurance industry courses and exams.

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Claim ? Notification to the insurance company that payment may be due under the terms of a policy.

Collateral assignment ? Assignment of the value or portion of value of a policy as security for a debt.

Commission ? Percentage of premiums paid to agents for selling policies.

Commission adjustment ? An adjustment made to the agent's folio to correct the amount of commission received.

Conditional coverage ? A separate contract included with a life insurance application to provide coverage to eligible applicants during the underwriting process, which ends when the application is issued or declined.

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Contingent beneficiary ? The party or entity to whom death benefits are paid if the primary beneficiary is dead.

Controlled business ? Policies for agents, employers, and their families.

Conversion (convertible term) ? Provision in a term policy contract that allows the insured to change to a permanent whole life plan without evidence of insurability.

Cost of insurance (COI) ? Total monthly deductions from an accumulation account to pay for insurance coverage. Includes the risk charge, benefits, riders, and monthly administrative charges.

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Death benefit ? The amount payable or paid as the result of the death of the insured. The actual amount paid by the company may be decreased by loans or increased by additional benefits payable under specific conditions or riders.

Decline ? A company rejects an application for life insurance, usually due to the health or occupation of the insured.

Delay cause ? An optional provision designating that death benefits won't be paid to a primary beneficiary unless the beneficiary survives the insured for a specified number of days.

Delivered ? The policy has been placed in force.

Disability income ? A benefit that provides a monthly income payment benefit for a specific period of time in the event of permanent disability. Under certain life insurance contracts, a disability income can be included under a rider.

Draft ? A check the insurance company issues for specific payments of services, usually medical exams and APS.

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Easy-Pay plan ? Payment method in which monthly premiums are electronically transferred from payor's bank to PEMCO.

Education needs ? The amount of money needed to pay for your beneficiaries' education.

Electrocardiogram (EKG) ? Electrical tracing of the heartbeat used in identifying cardiac disorders.

Emergency Money ? The amount of money needed for emergencies.

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Endowment ? A life insurance contract with cash value that pays the face amount at the end of a fixed period, at a specified age of the insured, or at the death of the insured if it's before the end of the stated period.

Evidence of insurability ? An applicant must prove he or she meets an insurance company's underwriting requirements to obtain a policy.

Excess credits ? Nonguaranteed money similar to dividends paid on life insurance policies, based on future expectations for investment income, mortality, and expenses. They're paid at the end of the policy year, contingent upon the policy being in force and all premiums for that policy year.

Existing life insurance ? The amount of life insurance you current have.

Expected mortality ? The number of deaths that theoretically should occur among a group of insureds during a given period, according to the mortality table in use.

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Expiry ? Terminating a term policy at the end of the stated period.

Extended term insurance (ETI) ? Nonforfeiture options on most whole life and endowment policies. The policyholder may elect to have the cash surrender value of the policy used to extend coverage for whatever term period the cash value will purchase.

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Face page ? First page of the contract showing the insured's name, policy number, and plan type.

Family group billing ? Payment method on two or more policies that are billed together on one notice.

Fellowship Life Management Institute (FLMI) ?
A national designation awarded after completing a series of life insurance courses and exams.

Final expenses ? The amount of money it will take to pay for your funeral or memorial service.

Fixed premium whole life (FPWL) ?
A nonparticipating whole life insurance plan that provides a level amount of protection to age 100.

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Free-look examination period ? A period of time stated in the policy contract when the policyholder can examine the policy and return it for full reimbursement.

Future purchase option rider ? A rider on a life insurance policy that specifies an insured can purchase additional life insurance without evidence of insurability.

Government allotment ? A payment method in which a government employee's premiums are deducted from his/her paycheck.

Grace period ? A provision that allows premiums to be paid anytime within a full month following the premium due date. If death occurs during the grace period, the premium is deducted from the proceeds payable. Generally, no interest is charged on overdue premiums paid during the grace period.

Group life insurance ? A single policy that covers a group of people who have a common interest (employees of the same company, members of the same union, etc.). State laws define the groups that may be covered.

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Guaranteed insurability benefit (GIB) ?
A supplemental benefit rider allowing an additional insurance to be purchased at prespecified dates without evidence of insurability. Similar to Future Insurance Option Rider, but normally used on juvenile policies.

Guideline premium limitations ? Limitations set by the IRS on how much premium can be applied to a policy to have it retain its insurance policy status (rather than be classified as an investment).

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Hard copy ? A printed, paper copy of a microfiche document.

Income replacement ? The amount of money needed to replace your current income (annual salary times the number of years your beneficiaries will need your income).

Incontestability clause ? An insurance clause common to most policies that specifies the "look back" period during which a policy may be voided based upon incorrect information on the application (usually two years from the date of issue).

Insurable interest ? A relationship that must exist when taking out a policy on another party (i.e. heirs, lenders, business partners, etc.). The beneficiary must have the potential to suffer a financial loss in the event of the death of another.

Insured ? The person on whose life an insurance policy is issued.

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Issue ? A policy that's issued but not delivered (placed in force).

Issue date ? The effective date of policy and original anniversary date.

Issued and paid (delivered) ? A policy that's been approved and all necessary money and delivery requirements have been received; the policy is now in force.

Lapse ? An insurance contract that's terminated because of missed payments.

Life expectancy ? The average duration of life remaining for a person at a given age.

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Life insurance ? Insurance in which the risk insured against is the death of a person, called the insured. Upon the death of the insured within the stated term, the insurance company agrees to pay a stated sum to the beneficiary.

Life Office Management Association (LOMA) ? Administers national insurance education programs and provides industry-related material upon request.

Liquid assets ? An asset that is readily and easily converted into cash.

Loan value ? The amount of cash value available that can be borrowed against the proceeds of the policy. The amount borrowed plus any accrued interest is deducted from the face amount at maturity or when payable to a claim. The loan amount is also deducted from the cash value at surrender.

Lump sum ? A single payment of the whole amount due.

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Matured value ? The proceeds payable on a life contract at the end of the specified maturity period (at the last age of the mortality table if the insured is still living at that age).

Maturity ? The date at which the face value becomes payable and the contract ends.

Medical examination ? An exam usually conducted by a licensed physician. The report is considered part of the application.

Medical Information Bureau (MIB) ? A clearing house of information on life insurance applicants. Adverse findings on previous examinations are recorded and shared with subscribing companies.

Monthaversary ? The monthly premium anniversary day on which interest is credited and risk rates deducted.

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Mortality table ? A chart that displays the death rates among a given group of people categorized by age.

Mortgage balance ? The amount of money still owing on your mortgage. (If you don't own your own home, Housing Needs refers to the money needed to secure a home for your beneficiaries.)

Mortgage protection ? One of the basic uses for life insurance. The specific purpose is to pay off any mortgage balance outstanding at the death of the insured.

Net cost ? The actual cost of premium used to pay for the base coverage of a policy. Ratings on the base coverage are included in the net cost calculation. Also known as the base cost.

Net premiums ? The premiums calculated on the basis of a given mortality table and rate of interest.

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Nicotine user ? An individual who has used nicotine -- including cigarettes, cigars, pipes, chewing tobacco, snuff, nicotine gum, and nicotine patches -- in the past 12 months.

Nonforfeiture option ? Options available under terms of the contract after cash values have accrued. Four options: 1) surrender for full cash value; 2) paid-up policy for amount of insurance that the available cash value as a single premium would purchase at attained age; 3) term insurance for full face amount of original policy for as long as the available cash value will pay necessary premiums; 4) Automatic Premium Loan (APL).

Non-nicotine user ? A person who has abstained from using any form of nicotine for at least 12 months.

Not taken ? A policy not accepted by the applicant because the coverage was not issued as applied for.

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Optional settlements ? The optional modes of settlement in lieu of a lump sum payment. The usual options are interest, installments for a certain period, fixed income as long as proceeds and interest last, or life income for a specified number of years.

Orphan policy ? A policy without a servicing agent.

Other debts and obligations ? Any other loans you have or other money you owe.

Paid-up ? A policy in which no future premiums are required and the company is held liable for the benefits provided under the terms of the contract.

Partial surrender ? Canceling a portion of the policy (Universal Life), thereby reducing the face amount or the account balance.

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Payor benefits ? The benefits available under juvenile policies and family and child riders for extra premium. It waives future premiums if the owner/payor dies or is disabled before the policy on the child becomes fully paid, matures as a death claim or an endowment, or the child reaches a specified age.

Payroll deduction ? Premiums withheld from a paycheck.

Policy contract ? The printed document stating the terms of the insurance contract and all signed application forms issued to the policyowner by the company.

Policy fee ? The amount charged in addition to the premium to cover the cost of administering the policy.

Policy provisions ? Legally required policy wording that spells out the rights of the policyowner and beneficiary, and the obligation of the insurance company.

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Payor disability and death benefit (PDD) ? Coverage on an owner/payor, if other than the insured. If the owner/payor dies or is disabled, premiums are waived.

Preferred risk ? A person whose physical condition, occupation, mode of living, and/or other characteristics indicate longevity that's superior to the average person of the same age.

Premium ? Payment required by the insurer to put a policy in force and keep it in force.

Premium notice ? Notice of premium due, sent by the company to the billing address.

Primary beneficiary ? The first beneficiary listed on the policy to whom the proceeds of a life insurance contract are paid at the death of the insured.

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Principal sum ? The amount of coverage provided by the contract.

Proceeds ? The net amount of money payable by the company at the death of an insured or at the maturity of a policy.

Property and casualty insurance ? Other lines of insurance, such as auto and home, besides life insurance.

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Reduced paid-up insurance ? Nonforfeiture option for cash value policies that lets the policyholder surrender value of the policy used to purchase a paid-up policy for a proportionate amount of insurance.

Reinstatement ? A life insurance company puts a policy back in force after it lapses because of nonpayment.

Reinsurance ? Companies place a limit on the amount of coverage risked on a single life. When issuing policies for amounts larger than the limit, the excess risk is shared with another company.

Renewal commissions ? The commissions paid on policies past the initial renewals.

Renewable term insurance ? Term insurance that includes a provision giving the policyowner the right to renew the insurance coverage at the end of a specified item, usually at an increased premium.

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Replacement business ? An application for insurance that's intended to take the place of a previously issued policy that has been recently terminated or will be terminated within six months of issuing the new policy.

Replacement chargeback ? First-year commission charged back on a replacement policy up to the amount of first year commission that was paid on the original policy.

Reserve ? The liability account that identifies the amount of assets need to pay future claims.

Rider ? An optional policy provision that's added to the basic contract to expand its coverage.

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Servicing agent ? An agent who didn't write the original insurance but provides services to the policyowner.

Settlement options ? Optional modes of settlement in lieu of a lump sum payment. The usual options are 1) interest; 2) installments for a certain period; 3) fixed income as long as proceeds and interest last; 4) life income with a certain payment for a specified number of years.

Simultaneous death act ? If the insured and primary beneficiary die at the same time and it's impossible to determine who died first, the insured is deemed to have outlived the beneficiary unless a policy clause says different. Therefore, the contingent beneficiary receives the proceeds if one has been named. If not, the policy usually states who will receive the proceeds.

Single premium ? The lump sum required to cover the entire cost of a life insurance or annuity contract.

Spouse insurance rider ? A rider that provides insurance coverage on the life of a spouse for a specified period of time. The rider may be converted to an individual life policy under specific limitations.

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Standard risk ? A person who, according to the company's underwriting standards, is entitled to insurance protection without extra rating or special instructions.

Substandard risk ? A risk class made up of people with medical or nonmedical impairments that give them a greater than average likelihood of loss. This class pays higher than standard premiums.

Supplemental term rider ? A supplemental agreement, available on some policies, providing for the payment of an additional specified sum in the event the insured dies during the given term period.

Surrender charge ? The amount deducted from the cash value of a policy when processing a request to surrender the policy. The charge represents the deferred cost of acquisition by the company in issuing the policy. The charge usually decreases every year.

Surplus ? The difference between a company's assets and liabilities. Net surplus includes contingency reserves and unassigned funds, while gross surplus also includes surplus assigned for distribution.

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Tax equity and fiscal responsibility act of 1982 ? An Act requiring that payors or plan administrators withhold federal income tax from full and partial annuity surrenders.

Technical and miscellaneous revenue act of 1988 ? An act passed to correct errors in previously passed legislation, eliminate perceived loopholes, and add new provisions.

Temporary insurance agreement (TIA) ?
A separate contract included with a life insurance application providing coverage to eligible applicants during underwriting, which ends when the application is issued or declined.

Termination ? The point at which the contract between the company and the insured no longer exists.

Term insurance ? Insurance protection during a limited number of years that expires without value if the insured survives the stated period.

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Term liability ? When reinstating a term plan, two months (grace period and current month) or one month is required.

Trusts ? A separate legal agreement set up to handle the disbursement of property (proceeds from a life insurance policy).

Underwriter ? The person who assesses and classifies the potential degree of risk that a proposed insured represents.

Universal life ? A permanent (cash value) policy with flexible premiums based on current assumptions for life expectancy and economic conditions. Under adverse conditions, the premium amounts scheduled may not be sufficient to continue the policy.

Waiver of premium ? Waives the monthly premium and keeps the policy in force if the insured is disabled.

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Whole life insurance ? An insurance plan offering protection for the insured's entire life, with proceeds payable at death. The plan provides cash value that is available for policy loan, which is deducted from the death benefit if not paid prior to death.

Writing agent ? A person who solicits and negotiates insurance contracts on behalf of the insurer.

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