Glossary

 
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Absolute Assignment

Is a legally binding document which enables the owner to irrevocably transfer all incidents of ownership in a contract to a third party.

 

Accelerated Benefit Provision

Is a provision found in many policies which permits a policy owner to collect a portion of the death benefit early if the insured person is diagnosed with a terminal illness, has clearly defined health-related issues, or is permanently confined to a nursing home. This is also known as Living Benefits or as a Benefit Access Rider (BAR).

 

Accelerated Death Benefit

Is a rider that can be added to a life insurance policy which enables the policyholder to receive cash advances against the death benefit if diagnosed with a terminal illness.

 

Accidental Death Benefit

Is a rider that can be added to a policy that provides the beneficiary with an additional benefit should the insured die from accidental causes. This is also known as a Double Indemnity Rider (DIR).

 

Account Value

Is the value in a Universal Life contract that is the difference between net premiums, plus interest credited, any applicable premium expense charges and monthly deductions, including any partial withdrawals.

 

Accounting Value Rider

Is a rider that provides an enhanced cash surrender value in the initial years of a policy by waiving a percentage of the surrender charges. The offset to this is a deferred first year commission paid to a producer or agent.

 

Accredited Investor

Is a person with wealth in excess of $1M or an individual income of more than $200,000 per annum, or a combined income of $300,000 in each of the preceding two years, or an employee benefit plan or a trust, that’s total assets are in excess of $5 million. Accredited Investors are often excluded from the protection of state insurance and Life Settlement regulations.

 

Accumulation Period

Is the time preceding a deferred annuity’s pay-out period during which money accumulates in an annuity contract.

 

Accumulation Value

The total sum of money accrued in a policy based on the net premium payments, interest credited and monthly deductions made. The accumulation value receives periodical premium payments and is valued on a daily basis for up-to-date investment results. The accumulation value is reduced by expense charges, monthly charges, fund charges (if applicable), charges for supplementary coverage, loans, and any partial withdrawals.

 

Activities of Daily Living (ADLs)

Are the basic activities of daily living, such as bathing, dressing, eating, toilet visits, and general mobility within the home.

 

Actuary

Is an individual who is professionally trained in the technical aspects of insurance and other related fields, but more specifically in the mathematics of insurance, including the calculation of premiums, claims reserves, and other related values.

 

Additional Indemnity (AI)

Is a premium paying rider that affords an insured with additional coverage which is paid out in the event of an accidental death (see Accidental Death Benefit).

 

Additional Term Rider (ATR)

Is a one-year, non-convertible, annually renewable term rider found on older whole life products. It is paid for by surrendering Paid-Up Additions (PUAs). The face amount may increase for up to 10 years depending upon the product. It can be used as a way of blending variable and term coverage on one single policy.

 

Adjustable Life Insurance

 

Adjuster

Is an individual, usually employed by a property or casualty insurer, who evaluates losses and settles claims. Independent adjusters can be contracted to adjust claims for the insurance companies.

 

Administrative Fee

Is a monthly deduction normally not exceeding $10 after the first policy year, which compensates the insurer for administrative expenses associated with the policy’s issue and ongoing policy maintenance. This will include premium billing and collection, a policy value calculation, confirmations, period reports and other associated matters.

 

Adverse Selection

Is a term that refers to a situation that occurs when individuals who have a higher-than-average likelihood of loss are applying for, or continuing insurance protection, to a greater extent than those who have an average, or a lower-than-average likelihood of sustaining the same loss. To correct this imbalance, an insurer will reduce their exposure to a large number of claims, by limiting coverage or increasing premiums.

 

Agent

Is a representative of an insurance company who is authorized to sell and service insurance contracts. Life insurance agents are also known as Life Underwriters or Producers.

 

Aggressive Growth Investment Strategy

Applicable to an investor type who tends to feel comfortable with and accepts substantial swings in annual return and loss of principal in order to achieve the potential for long-term growth. This strategy seeks capital appreciation from funds investing in: Large-cap U.S. stocks with some exposure to international stocks; stocks of small and medium-sized companies within the U.S. or emerging market countries; specific sectors (i.e. technology or real estate); and companies or countries, or both, that are striving to be leaders in developing new products or markets and have above average earnings growth potential. Because these companies or countries face greater business risk, investments in these funds generally exhibit much higher risk and return potential than other domestic equity funds or developed international or global funds that have a small exposure to high-yield bonds.

 

Anniversary Date of Policy

Is a policy’s twelve-month period measured from its date of issue.

 

Annual or Semi-Annual Report

It is an SEC requirement that a formal report be sent to Variable Universal Life ( VUL) policyholders, providing market and performance overviews as well as financial statements for each of the insured’s underlying investment options.

 

Annual Statement

Is a statement sent annually to policy owners and producers following the policy anniversary date. It provides a summary of the cumulative results of the policy year's financial activities. It includes current and prior year values of death benefit and cash value as well as providing information on declared interest.

 

Annuitant

Is the individual whose projected life expectancy is used to determine the payout of an annuity.

 

Annuitize

Is the process of converting the value within an annuity contract into a regular income stream for life.

 

Annuity

Is a contract issued by a life insurance company that provides tax-deferred savings and a choice of pay-out options designed to meet the owner’s requirements in retirement: for example, income for life, income for a certain period of time, or a lump sum.

 

Annuity Certain

Is a contract that offers an income stream to an annuitant, their beneficiary, or estate, for a specified number of years, regardless of life or death.

 

Annuity Consideration

Is the payment, of one or regular periodic payments required by an annuity provider that a policyholder makes towards an annuity contract.

 

Application

Is a statement detailing information declared by a prospective purchaser that helps an insurer evaluate the acceptability of risk.

 

Asset Allocation

Is a strategy that investors deploy to diversify their assets. Asset allocation is a useful way of balancing risk and return in pursuit of various investment targets.

 

Asset Class

Is a category created by the grouping of similar types of investments. Variable Universal Life insurance investment options are often organized by asset class ranging from Small Cap to Fixed Account. Each asset class has a set of characteristics and relative risk versus potential reward considerations.

 

Asset Management Fee

Is a daily charge for asset management, based on the amount of assets invested, which is imposed by a fund manager and varies by investment option. This fee is not required for a Fixed Account.

 

Asset Valuation Reserve (AVR)

Is a reserve that makes provisions for credit-related losses on fixed-income assets, defined as the Default Component as well as all types of equity investments, defined as the Equity Components.

 

Assets

These include property owned by an insurance company, as well as stocks, bonds, and real estate. Insurance accounting focuses on the insurance company’s solvency and its ability to pay claims; consequently, a conservative valuation of its assets is required. This prohibits a company from listing assets on its balance sheet when values are uncertain.

 

Assignee

Is an individual who receives the transfer of property, title or rights from a contract.

 

Assignment

Is the legal transfer of one individual’s interest in an insurance policy to another; it is also the printed form which, when signed by the registered policy owner, authorizes the transfer into the name of a new owner, known as the Assignee. The assignment also usually provides for the granting by the registered owner of power of attorney to another person to accomplish the transfer. Assignments are often executed by the registered owner “in blank”, with the name of the assignee and the person granted power of attorney filled in subsequently.

 

Assume

Is to accept coverage exposure from another insurer.

 

Assuming Company

See Reinsurer.

 

Assumption Reinsurance

Is typically a reinsurance agreement in which one company permanently transfers full responsibility for the obligations of a block of policies to another company. After the transfer, the ceding company no longer participates in the insurance agreement.

 

Attained Age

Is the age of an insured at the present point in time. This is often used in reference to an Attained Age Conversion when an individual switches product types and is assessed premium rates at the current age versus the age the insured was when the initial contract was issued.

 

Attained Age Conversion

When term life insurance policies are converted to other types of insurance, the premiums charged for the new policy are calculated according to the insured’s attained age and not the issue age of the policy.

 

Attending Physician Statement (APS)

Is a statement from a doctor who has treated a proposed insured. This information is used to assess the potential medical risk that the applicant presents to an insurance company.

 

Automatic Premium Loan

Is a loan provision offered in a life insurance policy which allows any premium not paid by the end of the grace period (typically 30 or 31 days) to be paid automatically through a policy loan providing that the cash value is sufficient.

 

Automatic Rebalancing

Is a program that on a quarterly, semi-annual, or annual basis restores to a pre-determined level the percentage of policy value originally allocated to each sub-account. The pre-determined level is the allocation initially selected on the application. This feature is not available if the client has chosen a Dollar Cost Averaging (DCA) program.

 
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