A
A.M. Best
An independent insurance rating firm that ranks firms on financial strength, operating performance and market profile.
Accelerated Death Benefit
Provides a lien secured by the death benefit while the insured person is terminally ill or if they meet certain other conditions. The owner must furnish medical proof of the terminal illness or other condition.
Accept/Reject Underwriting
An acceptance or rejection for underwriting based on the answers to the questions on the application. An applicant is either accepted and issued a policy, or rejected and denied coverage. In most cases, no additional medical records or tests are required to determine an applicant's eligibility.
Accidental Death Benefit
An additional death benefit to be paid if death is a direct result of an "accident," (as defined in the policy.)
Activities of Daily Living (ADLs)
There are six activities considered ADLs, which are routine daily activities generally considered necessary for a self-sustaining person to remain independent. The six ADLs are eating, bathing, continence, dressing, toileting and transferring (movement and mobility).
Actuary
A person who uses mathematics and statistics to determine insurance and annuity calculations, such as life expectancy, premiums, rates, etc.
Annuitant
The person whose lifetime is used as the measuring period to determine how long benefits are payable under an annuity.
Annuity
A means of saving money on a tax-deferred basis, when purchased from an insurance company. The money in the annuity can be paid out as a partial withdrawal, as a full withdrawal or as a guaranteed income, usually at retirement.
Annuity Payments
Money that either the policyholder or a beneficiary receives from an annuity. The type and dollar value of the annuity determine when and how such money is paid out.
B
Benchmark
A point of reference used for comparison.
Beneficiary
The party or parties designated as the recipient(s) on death to receive money from a life insurance policy or annuity.
Benefit
The amount of money paid when an insurance claim is approved; also referred to as a policy benefit.
C
Cash Value
In a life insurance policy, the cash value is the amount of money—before adjustment for factors such as policy loans or late premiums—that the policyowner will receive if s/he allows the policy to lapse or cancels the coverage and surrenders the policy to the insurance company. Cash values are a feature of most types of permanent life insurance, such as whole life and universal life. Typically, a term life insurance policy will not have cash value.
Compound Interest
Interest paid or earned on an initial investment (principal), as well as on the accrued interest.
Compounding
The process by which the value of an investment increases exponentially over time because of compound interest.
Convertible Term Insurance
Life insurance coverage that is purchased to cover someone for a specific period of time that can, during or at the end of the term, be converted to permanent life insurance. Permanent life coverage is available regardless of health conditions.
Current Interest Rate
The current rate of interest earned on a life insurance policy or annuity contract.
D
Death Benefit
The amount paid upon death to a beneficiary according to the terms of a life policy or annuity contract. The amount is stated in the policy and is paid at face value, plus the proceeds from any applicable insurance riders, and minus any outstanding loan amounts.
Death Claim
A request for payment due to death under the terms of a life insurance policy or annuity contract.
Deferred Annuity
A financial product that allows a person to accumulate money on a tax-deferred basis, when purchased from an insurance company, that can subsequently be paid out as income stream or taken in a lump sum.
Defined-Benefit Plan
A retirement plan sponsored by an employer in which the benefits an employee receives at retirement are clearly defined and are not based on the amount that the employee and/or employer have contributed.
Defined-Contribution Plan
A retirement plan sponsored by an employer in which the benefits an employee receives at retirement are based solely on the contributions made by the employee and the employer, and the earnings thereon. A 401(k) is a defined-contribution plan.
Double Indemnity
A provision in certain life insurance policies (also known as an accidental death benefit) that pays double the death benefit to a beneficiary if the insured dies in an accident or in another way as specified by the policy.
Duplicate Policy/Contract
A duplicate life policy or annuity contract that an owner request if the original is lost or destroyed.
E
Endorsement
An agreement attached to an insurance policy that adds or subtracts coverage and takes the place of the original terms of the policy.
Extended Coverage
A written agreement or clause added to an insurance policy that provides additional coverage beyond the coverage provided in a basic policy.
F
401(k) Plan
A defined-contribution retirement savings account through which the owner can make pre-tax contributions up to a certain annual limit. Contributions may be matched by an employer.
403(b) Plan
Similar to a 401(k) plan, but available only to employees of nonprofit organizations or public school system.
Face Amount
The basic amount of life insurance coverage under a life insurance policy.
Federal Deposit Insurance Company (FDIC)
The federal government's bank deposit insurer.
Financial Planning
The process of developing and implementing a coordinated plan to help achieve financial objectives. It could include income tax planning, retirement planning, investment planning, risk management and estate planning.
Fitch
An independent insurance rating firm that rates firms based on financial strength.
Fixed-Rate Loan
A loan whose interest stays the same throughout the life of the loan.
G
Gift
A transfer of property from one person to another without adequate and full consideration.
Gift Tax
Tax paid on the transfer of assets. It can be fully or partially offset by the annual gift tax exclusion and the applicable credit amount (formerly known as the unified credit).
Grace Period
The period of time after a loan or insurance payment due date before cancellation of the policy or default due to non-payment.
Guaranteed Interest Rate
The minimum rate of interest guaranteed to be credited to a life insurance policy or annuity contract.
Guaranteed Renewable
An insurance policy provision that guarantees the right to renew the policy for the period stated in the policy, as long as premiums are paid. Premiums may increase, but coverage cannot be changed or denied.
H
Highly Compensated
An employee is highly compensated if he or she: (1) was a 5% owner of the employer, or (2) received compensation for the preceding year in excess of $95,000.
I
Immediate Annuity
An annuity that begins paying out income payments within 12 months or less after the premium is paid.
In Situ
Medical term used to describe a diagnosis of cancer wherein the tumor cells still lie within the tissue of the site of origin without having invaded neighboring tissue.
Index
A measurement of the changes in the economy and financial markets.
Indexed Universal Life Insurance
A universal life insurance product that offers cash value growth potential in the form of interest credits linked, in part, to the performance of a market index, with protection from downside risk through a minimum interest rate guarantee.
Individual Retirement Account (IRA)
A tax-deferred savings vehicle with a financial institution in which contributions may be invested in stocks, bonds, money market funds, etc.
Insurance Amount
Basic policy coverage amount and, if applicable, any supplementary term coverage.
Insured Insurability Benefit
Provides the insured with the right to purchase additional insurance on specified option dates occurring after issue of the original policy without evidence of insurability.
Irrevocable Beneficiary
A permanent, unchangeable designation of a beneficiary.
Irrevocable Trust
A trust agreement that cannot be altered, amended, revoked or terminated and is generally not subject to estate taxes.
Issue Age
The age of the insured on the date upon which a policy became effective.
J
Joint Life Insurance
One insurance policy that covers two lives, with benefits payable either at the first death or the second death.
Joint Owner
A person named jointly with another person as owner of an annuity contract or life insurance policy.
Joint Tenancy With Rights of Survivorship
Equal ownership of property by the insured and at least one other person. When the owner dies, ownership passes to the other co-owner(s) instead of to the estate.
K
Keogh Plan
A type of tax-deferred retirement account for self-employed persons.
Key Employees
For purposes of the "top-heavy" rules, a key employee is one who is (1) an officer whose salary exceeds $135,000 (officer status is limited to the greater of three or 10 percent of all employees, but not more than 50), (2) a more-than-5-percent owner of the employer, or (3) a more-than-1-percent owner of the employer whose salary exceeds $150,000.
L
Life Annuity
An annuity that pays out income periodically during life and ends upon death.
Life Expectancy
A statistical measurement of the number of years a person is expected to live.
Life Insurance
A policy that pays a beneficiary a specified death benefit amount when the insured dies.
Limited Benefit
Benefit is reduced for certain conditions.
Loan Interest Rate
The percentage of interest charged when a loan is taken against the cash value of a life insurance policy. The applicable rate is stated in the policy contract.
Loan Value
An amount that can be borrowed from a life insurance policy.
M
Modified Endowment Contract (MEC)
A tax qualification of a life insurance policy whose cumulative premiums exceed federal tax law limits. The taxation structure and IRS policy classification changes after becoming a modified endowment policy.
N
No-Lapse Guarantee
Agreement by the insurance company to keep the universal life insurance policy in force, even if the cash value becomes zero or less than zero, provided that the minimum premium requirements stated in the policy are met.
O
Owner
The person who owns a life insurance policy or annuity.
P
Paid to Date
For traditional life insurance policies, this is the actual date to which the premium is paid. A similar concept applies to universal life policies. There is a set monthly date on which charges and expenses are deducted from the policy cash value. If not sufficient, policy will enter a grace period.
Paramedical Exam
A physical examination that may be required to confirm height, weight and overall general health; commonly referred to as a paramed exam.
Policy Number
The identifying number assigned to a policy contract for a life insurance product or fixed annuity.
Preferred Risk
An insurance underwriting classification that calls for the insured person to pay lower premiums than other insured persons, since they have a lower risk of incurring a loss.
Premium
The amount of money paid as either a single payment or periodic payments to maintain insurance coverage.
Premium Payer
If not the owner — the person to whom notices are mailed and who remits the premium payments to the company. The premium payer has only limited rights to access policy or annuity information.
Pure Insurance
In life insurance, the difference between the face amount and cash value. Also referred to as the net amount at risk.
Q
Qualified Distribution
A qualified non-taxable distribution from a Roth IRA must satisfy a five-year holding period and one of four requirements: (1) made on or after age 59½; (2) made to beneficiary on or after individual's death; (3) attributable to being disabled; or (4) used to pay for qualified first-time home buyer expenses.
Qualified Plan
A tax-deferred savings plan, such as a profit-sharing or a pension plan, or individual retirement account (IRA).
R
Rated Policy
Insurance that costs a higher premium because the insured has a physical impairment, past medical condition, hazardous occupation, dangerous hobby, or another underwriting risk.
Relationship
Defines how an individual or organization is connected to a life insurance policy or fixed annuity contract. The most common relationships are insured, owner and payer.
Relationship to Insured/Annuitant
Defines how a beneficiary is related to the insured person/annuitant (e.g., spouse, mother, brother, friend, etc.).
Requirements
A variety of different items that are ordered by underwriters so they can effectively evaluate risk and make an assessment on an applicant's insurability.
Return of Premium
When the insured dies, this feature on select policies will return all or part of the premiums paid to the owner, to the owner's beneficiary if the owner is deceased, or to the owner's estate if there is no beneficiary.
Rider
An attachment that amends a contract or policy and in many cases adds benefits or features.
Rollover IRA
An IRA that allows an individual to consolidate retirement dollars from a number of sources, such as 401(k), 403(b), or governmental 457 plans.
Roth Conversion IRA
An IRA that is established by converting assets from a traditional or Rollover IRA into a Roth IRA.
Roth IRA
A retirement savings vehicle in which contributions are made with after-tax dollars. Withdrawals of contributions can be made without taxes at any time. Withdrawals of earnings are taxable but only when the withdrawal is not a "qualified" distribution.
S
Securities & Exchange Commission (SEC)
A federal agency charged with overseeing and regulating certain U.S. financial markets.
Single-Premium Deferred Annuity
A single-premium deferred annuity allows for one single, lump-sum contribution. Money grows tax-deferred until it's withdrawn or the annuitant begins receiving a stream of income payments.
Single-Premium Immediate Annuity
A single-premium immediate annuity generates income payments one period after the annuity is purchased. Single-premium immediate annuities let a person set up an immediate, steady income stream with a one-time, lump-sum contribution.
Social Security Number (SSN)
A nine-digit identification number issued by the Social Security Administration.
Spouse Accidental Death Benefit
Additional life insurance death benefit paid if the death of a covered spouse is the result of an accident as defined by the policy.
Spouse Death Benefit
Death benefit amount for a spouse covered by a spouse rider on a life insurance policy.
Standard & Poor's (S&P)
A leading rating agency in the evaluation of the financial soundness of corporations and businesses.
Surrender Fee/Charge
An amount deducted from the policy value when a person surrenders a life insurance policy or annuity.
Survivorship Life Insurance
Also called 'second-to-die' or 'last-to-die' insurance. Survivorship life insurance covers the lives of two people, and pays benefits when the second person dies. It is often used by couples to fund estate tax liability.
T
Tax-Deferred
Postponement of the payment of taxes on a retirement or annuity plan until the income payments begin.
Tax-Deferred Retirement Plan
A retirement savings plan that lets a person make contributions and accumulate earnings tax-free until they receive them as benefits, at which time they are generally in a lower tax bracket.
Taxpayer Identification Number (TIN)
A nine-digit taxpaying identification number assigned by the United States Internal Revenue Service to an individual or business.
Term Life Insurance
Life insurance that provides coverage for a specific time period.
Traditional IRA
An IRA that may have deductible contributions. Earnings grow tax-deferred until withdrawn.
Trust
Property interest held by one person for the benefit of another.
U
Underwriting
The process used by insurance companies to determine how much life or other types of insurance a person can qualify for and at what price, based upon risk factors.
Universal Life Insurance
Life insurance that builds tax-deferred cash value either at a guaranteed minimum rate of return plus an additional return as credited by the insurance company, or based upon market performance. It also lets a person change the amount of their premium payments and/or coverage amount within certain limits, depending on certain circumstances or needs.
V
Variable Universal Life Insurance
Life insurance that builds tax-deferred cash value and includes features of both variable and universal life insurance coverage. The value of the policy depends upon the performance of the underlying investments selected. Like universal life, the premium and coverage options are flexible, within certain limits. A policyholder is subject to investment risk, including loss of principal.
W
Waiver of Premium
An optional benefit on some insurance policies that either pays all or a portion of premiums due, or waives premiums if the insured becomes totally disabled.
Whole Life Insurance
Permanent life insurance that provides protection to age 100 as long as the fixed premiums are paid. Accumulates tax-deferred cash value that can be borrowed against through an interest-bearing loan or receive if the policy is surrendered.
