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GLOSSARY OF TERMS

GLOSSARY OF TERMS

Accelerated Benefits Rider
A life insurance rider that allows for the early payment of some portion of the policy's face amount should the insured suffer from a terminal illness or debilitating injury.

Accidental Death and Dismemberment
Insurance providing payment if the insured's death results from an accident or if the insured accidentally suffers a loss of a limb or totally and irreversibly loses his or her eyesight.

Accidental Death Benefit Rider
A life insurance policy rider providing for payment of an additional benefit related to the face amount of the base policy when death occurs by accidental means.

Annual Renewable Term
A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability. Also called Yearly Renewable Term.

Beneficiary
Person to whom the proceeds of a life policy are payable when the insured dies. The various types of beneficiaries are: primary beneficiaries, those first entitled to proceeds and secondary beneficiaries, those entitled to proceeds if no primary beneficiary is living when the insured dies.

Best's Insurance Report
A guide, published by A.M. Best, Inc., that rates insurers' financial integrity.

Cash Surrender Value
The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value will reduce the death benefit and may increase the risk of lapse.

Conditional Receipt
Given to policy owners when they pay a premium at time of application. Interim coverage during the underwriting process is provided subject to terms and conditions of the receipt.

Contingent Beneficiary
Person or persons named to receive proceeds in case the original beneficiary is not alive.

Conversion Privilege
Allows the policyowner, before an original insurance policy expires, to elect to have a new policy issued for the same insurance coverage. Normally a term policy is converted to a whole life policy.

Convertible Term Insurance
Term insurance which can be converted, at the option of the policy-owner and without evidence of insurability, for a permanent insurance policy.

Decreasing Term Insurance
Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually.

Disability Income Rider
A type of health insurance coverage, that provides for the payment of regular, periodic income should the insured become disabled from illness or injury.

Dividend
A return of part of the premium on participating insurance that is based on the insurer's investment, mortality, and expense experience. Dividends are not guaranteed.

Face Amount
The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions or acquired through the application of policy dividends.

Increasing Term Insurance
Term life insurance in which the death benefit increases periodically over the policy's term. Usually purchased as a cost of living rider to a whole life policy.

Insurability
Acceptability to the company of an insurance applicant.

Insurance Company Ratings
There are three major insurance industry ratings services; A.M. Best, Standard & Poor's and Moody's.

Insured
The person on whose life the policy is issued.

Level Premium
Life insurance for which the premium remains the same from year to year. The premium is normally more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Loan
A loan made by a life insurance company to a policyowner on the security of the cash value of a policy.

Medical Examination
Usually conducted by a licensed para-med or an M.D. if the coverage amount is large and/or the insured is older. The medical report is part of the application, becomes part of the policy contract and is attached to the policy. A "non-medical" is a short-form medical report filled out by the agent or conducted verbally on the phone.

Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.

Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer.

Permanent Life Insurance
Any form of life insurance except term; generally insurance that builds up a cash value, such as whole life.

Policyowner
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

Preferred Risk
A client whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity, superior to that of the average longevity of unimpaired lives of the same age.

Premium
The periodic payment required to buy and keep an insurance policy in force.

Primary Beneficiary
In life insurance, the beneficiary designated by the insured as the first to receive policy benefits.

Proceeds
Net amount of money payable by the company at the insured's death or at policy maturity.

Renewable Term Insurance
Term insurance which can be renewed at the end of the term, at the option of the policyowner and without evidence of insurability, for a limited number of successive terms. The rates generally increase at each renewal as the age of the insured increases.

Rider
Strictly speaking, a rider adds something to a policy. However, the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy's conditions are expanded and additional coverages added, or a coverage or condition is waived.

Secondary Beneficiary
An alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.

Smoker Ratings
Insurers will give a lower premium rate to buyers who do not smoke or use tobacco. If you smoked in the past, most carriers will consider you a non-smoker if you have not smoked for one year prior to applying for coverage.

Standard Risk
Person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

Sub-Standard Risk
Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

Suicide Clause
Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years, after the issue date, the company's liability will be limited to a return of premiums paid.

Term Insurance
Protection during limited number of years; expiring without value if the insured survives the stated period. The usual periods are 5, 10, 15, 20, 30 and to age 100. Does not build up cash value and is the least expensive.

Term of Policy
Period for which the policy runs.

Underwriter
Company receiving premiums and accepting responsibility for fulfilling the policy contract. Also, company employee who decides whether the company should assume a particular risk; or the agent who sells the policy.

Uninsurable Risk
One not acceptable for insurance due to excessive risk.

Universal Life Insurance
A flexible premium life insurance policy under which the policyowner may change the death benefit and vary the amount or timing of premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at rates which may change from time to time. The owner may select the investments in which the premiums are to be invested.

Waiver of Premium
Rider or provision included in most life insurance policies exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually six months. Not available at older ages.

Whole Life Insurance
A basic type of permanent life insurance which can provide life-time protection at a level premium. Premiums must generally be paid for as long as the policy is in force.

Ivon T. Hughes, The Hughes Trustco Group Ltd.

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Articles from July 2007
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