A method of federal income taxation in which the owner of a
life insurance policy is taxed periodically on portions of
the policy's cash value build-up.
In a defined benefit pension plan, the amount of pension
benefit that has accumulated in a pension plan on behalf of
an individual plan participant as of a specified date.
The net amount paid by the contract owner for a deferred
annuity plus interest earned, less the amount of any
withdrawals and fees.
The period between the contract owner's purchase of a
deferred annuity and the onset of the annuity's payout
The person whose lifetime is used as the measuring period to
determine how long benefits are payable under a life
annuity. In many cases, an annuity's contract owner, payee,
and annuitant may be the same person.
(1) A series of payments made or received at regular
intervals. (2) A policy under which an insurance company
promises to make a series of periodic payments to a named
individual in exchange for a premium or a series of
premiums. There are many kinds of annuities.
The term used for ownership shares in a variable annuity's
separate-account fund after the accumulation period has
ended. Annuity units are bought with accumulation units and
are used to determine benefit payment amounts.
All things of value owned by an individual or organization.
The person or party the owner of an insurance policy names
to receive the policy benefit if the event insured against
An insurance plan that enables the owner(s) of a business to
provide for the continued operation of the business if the
owner or a key person dies.
An agreement in which one party agrees to purchase a second
party's financial interest in a business following the
second party's death and the second party agrees to direct
her estate to sell that interest to the purchasing party.
The purchase is often financed with the proceeds of a life
Cash Surrender Value
(1) In a life insurance policy, the amount of money,
adjusted for factors such as policy loans or late premiums,
that the policyowner will receive if the policyowner cancels
the coverage and surrenders the policy to the insurance
company. Also called the net cash value. Compare to cash
value. (2) In an annuity, the amount that a contract owner
will receive if he surrenders a deferred annuity. This
amount is equal to the accumulated value of the annuity less
any surrender charges specified in the policy.
In a life insurance policy, the amount of money, before
adjustment for factors such as policy loans or late
premiums, that the policyowner will receive if the
policyowner 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. Compare to
cash surrender value.
A request for payment under the terms of an insurance
The person or party making a formal request for payment of
benefits due under the terms of an insurance contract.
A certificate issued to the beneficiary of a life insurance
policy that outlines the amount of life insurance proceeds
in a retained asset account, the account number, and the
current interest rate.
The maximum annual addition permitted by law to be made to a
participant's account in a defined contribution pension
plan. The annual contribution includes employer
contributions, employee contributions, and forfeitures that
have been reallocated from other participants' accounts. The
limit is subject to legislative change and is generally
indexed to inflation so that it increases as price levels
increase. In the United States, the contribution limit is
set under Section 415 of the Internal Revenue Code.
Convertible Term Insurance
A type of term insurance that allows the policyowner to
change the term insurance policy to a whole life policy
without providing evidence of insurability.
The amount of money paid or due to be paid when a person
insured under a life insurance policy dies. This amount does
not include adjustments for outstanding policy loans,
dividends, paid-up additions, or late premium payments.
A request for payment under the terms of a life insurance
An annuity contract under which premiums are accumulated at
interest and the annuity income benefits begin more than one
annuity period after the date on which the annuity is
Deferred Compensation Plan
A plan established by an employer to provide benefits to an
employee at a later date, such as after the employee's
Defined Benefit Pension Plan
A pension plan that specifies the benefits that the plan
promises to pay to a participant upon retirement, with the
benefits determined according to a specified formula.
Contrast with defined contribution pension plan.
Defined Contribution Pension Plan
A pension plan that specifies the amount of annual
contributions that the plan sponsor will make on behalf of a
plan participant. A defined contribution plan does not
guarantee a specific amount of retirement benefits. A
participant's benefits at retirement are based on the amount
that has been contributed to the participant's account, plus
investment earnings. Contrast with defined benefit pension
The process of converting a mutual insurance company to a
stock insurance company.
Disability Income Insurance
A type of health insurance designed to compensate insured
people for a portion of the income they lose because of a
disabling injury or illness. Generally, benefits for
disability income insurance are provided for the disabled
person in the form of monthly payments. Sometimes called
loss of time insurance.
(1) A refund of excess premium paid to the owner of an
individual participating life insurance policy. Such a
dividend is paid out of an insurer's divisible surplus. Also
called a policy dividend or a policyowner dividend. (2) The
portion of a group insurance premium that is returned to a
group policyholder whose claims experience is better than
had been expected when the premium was calculated. Also
called experience rating refund, experience refund, and
retroactive rate reduction. (3) A periodic payment paid by a
business to a stockholder. A dividend paid in cash is called
a cash dividend. A dividend paid in the form of additional
shares of stock is called a stock dividend.
A plan that addresses how best to preserve an individual's
assets after the individual dies. Life insurance is often an
important part of an estate plan.
Losses for which an insurance policy does not provide
benefits. For life insurance and accidental death benefit
coverages, exclusions describe causes of death for which
benefits will not be paid. In health insurance policies,
exclusions describe losses not covered, such as those
related to pre-existing conditions, cosmetic surgery, or
In a life insurance policy in which the benefit is not
variable, the amount stated as payable at the death of the
insured. It is generally shown on the first page of the
policy. Also called the face value.
Flexible Premium Annuity
A deferred annuity for which the contract owner pays
periodic premiums that may vary between a set minimum and a
set maximum amount. The contract owner may also elect not to
make any premium payment in any given period.
Group Universal Life Insurance (GUL)
Group life insurance for which the insured usually pays the
full premium and can choose the amount of premium to pay,
and in which the death benefit is determined by the amount
of the premium. The insured can vary the premium and death
benefit amounts during the life of the policy. Like
individual universal life insurance, GUL is designed to
combine insurance protection with a savings/investment
element. In addition, GUL is usually "portable," which means
that a group member who leaves the group can continue
coverage under the group plan. Sometimes called a Group
Universal Life Program (GULP).
Guaranteed Investment Contract (GIC)
A retirement plan funding vehicle under which the insurer
accepts a single deposit from the plan sponsor and
guarantees to pay a specified interest rate on the funds
deposited during a specified time period. Also called a
guaranteed income contract or a guaranteed interest
An annuity under which income payments begin one period
after the annuity is purchased. Often called a
single-premium immediate annuity (SPIA).
Income Replacement Ratio
The percentage of pre-retirement income that a retiree would
need to receive after retirement in order to have a
post-retirement standard of living equivalent to his or her
pre-retirement standard of living. This ratio is generally
less than 100 percent, because some of an individual's
expenses (i.e., taxes, commuting costs, clothing
expenditures, savings needs) decrease after retirement. Also
known as the replacement ratio.
Indeterminate Premium Life Insurance
A type of non-participating whole life insurance that
specifies both a maximum potential premium rate and a lower
premium rate. The lower rate is paid by the policyowner for
a specified period (from 1 to 10 years) immediately after
the policy is purchased. Later, the premium rate may
fluctuate according to the mortality, expense, and
investment experience of the insurance company, but the
premium rate will never be larger than the maximum premium
rate. Also called flexible premium life insurance,
non-guaranteed premium life insurance, and variable premium
Insurance that is issued to insure the life or health of a
named person or persons, rather than the life or health of
the members of a group. Also called ordinary insurance.
Individual Retirement Account (IRA)
In the United States, a tax-sheltered savings plan that
allows some citizens to make pre-tax contributions to an
approved account. The contributions and investment earnings
are taxable as income only when paid out. Investors can
establish IRAs through a number of financial institutions,
including insurance companies.
(1) In the United States and Quebec, a person whose life is
insured by an insurance policy (for individual life
insurance policies, called the life insured in the rest of
Canada). (2) In the common law provinces of Canada, the
owner of an individual life insurance policy (called the
policyowner in the United States and the policyholder or
owner in Quebec). (For the purposes of this glossary, we
have used this term as it is used in the United States and
Quebec, except in the definitions of purely Canadian terms,
in which cases we have made it clear that we are using the
term as it is used in Canada.)
A general category of insurance products in which the death
benefit and the cash value vary according to the insurer's
investment earnings. In investment-sensitive insurance
products, policyowners share a portion of the insurer's
investment risk. The exact benefit amounts for these
policies cannot be computed in advance, beyond any
guaranteed minimums. The specific products that make up this
category of insurance include variable annuities, variable
life insurance, and variable universal life insurance. Also
called interest-sensitive insurance.
Joint Whole Life Insurance
One insurance policy that covers two lives and that provides
for payment of the proceeds at the time of the first
insured's death. Also called first-to-die life insurance.
Key-Person Life Insurance
Life insurance purchased by a business on the life of a
person (usually an employee) whose continued participation
in the business is necessary to the firm's success and whose
death or disability would cause financial loss to the
Last Survivor Life Insurance
Whole life insurance that covers two persons and provides
for payment of the proceeds when both insureds have died. It
is generally designed to pay estate taxes. Also known as
second-to-die life insurance.
Premiums that remain the same each year that the life
insurance policy is in force.
Level Term Insurance
A type of term insurance that provides a death benefit that
remains the same during the term of coverage.
(1) The date on which an endowment insurance policy's face
amount will be paid to the policyowner if the insured is
still living. (2) The date on which an insurer begins to pay
periodic benefits under an annuity. Also known as the
A government-funded program in the United States that
provides medical expense coverage for eligible people under
age 65 who are indigent and meet certain other criteria. The
program is administered by the states and is supported by
state and federal funds.
Money Market Fund
A low-risk mutual fund that achieves great liquidity by
investing primarily in short-term securities.
The frequency with which death occurs or is expected to
occur among a defined group of people.
A chart that displays the incidence of death among a given
group of people categorized by age.
National Association of Securities Dealers (NASD)
A voluntary association of securities firms empowered by the
Maloney Act of 1938 to regulate the affairs of securities
firms and to promote fair and ethical practices in the
Net Asset Value (NAV)
The value or purchase price of a share of stock in a mutual
Nonqualified Deferred-Compensation Plan
In the United States, a retirement income plan that does not
meet the requirements of the Internal Revenue Service (IRS)
for qualified plans. Although such plans do not receive the
tax advantages of qualified plans, they need not satisfy the
restrictive plan design requirements that qualified plans
must satisfy. Nonqualified plans are often used as a benefit
for executives or highly compensated employees.
Normal Retirement Age
The earliest age at which a participant in a pension plan
can retire and receive the plan's specified benefit in full.
Usually age 65.
A choice that a policyowner can make when deciding how to
apply settlements, dividends, or non-forfeiture values.
An insurance policy that requires no further premium
The period during which annuity benefit payments are made.
Also known as the liquidation period.
Permanent Life Insurance
Life insurance that provides coverage throughout the
insured's lifetime and also provides a savings element that
builds a cash value.
A written document that contains the terms of the
contractual agreement between an insurance company and
The person or party who owns an individual insurance policy.
The policyowner is not necessarily the person whose life is
insured. The terms policyowner and policyholder are
frequently used interchangeably.
(1) A group of investments managed or owned by an individual
or organization. (2) All of the products offered by an
The payment, or one of a series of payments, required by the
insurer to put an insurance policy in force and keep it in
The amount of money that must be invested on a certain day,
sometimes called the valuation date, in order to accumulate
to a specified amount at a later date.
In the United States, a pension plan or employee-benefit
plan that meets a series of federal government requirements
and is therefore eligible for certain tax advantages.
Any person who is licensed with the National Association of
Securities Dealers and who is engaged either in selling
securities as the agent or representative of a broker-dealer
or in training the sales persons associated with a
Renewable Term Insurance
A type of term insurance which includes a renewal provision
that gives the policyowner the right to renew the insurance
coverage at the end of the specified term without submitting
evidence of insurability.
(1) A term life insurance policy provision that gives the
policyowner the right to continue the insurance coverage at
the end of the specified term without submitting evidence of
continued insurability. (2) A provision in an individual
health insurance policy describing the circumstances under
which the insurance company may refuse to renew the
coverage, may cancel the coverage, or may increase the
policy's premium rate.
An amendment to an insurance policy that becomes a part of
the insurance contract and expands or limits the benefits
payable. Also called an endorsement.
In the United States, the tax-free transfer of account
balances to an individual retirement account from a
qualified retirement plan or another individual retirement
Section 401(k) Plan
In the United States, a qualified cash or deferred
profit-sharing or stock-bonus plan which allows participants
to decide, within limits, how much of their compensation is
deferred. Participant contributions are not taxable until
the funds are withdrawn, and sponsor contributions as well
as investment earnings are also tax-deferred to the
participant. Also called a Cash or Deferred Arrangement
Section 403(b) Plan
In the United States, a type of employee retirement plan
established by certain tax-exempt organizations (i.e.,
hospitals, charities, churches) and educational
organizations. Section 403(b) plans were created by Congress
to serve as an incentive for tax-exempt organizations (who
could not benefit from the tax advantages of qualified
pension plans) to offer their employees some form of
retirement compensation. Also known as a tax-deferred
annuity (TDA) plan or a tax-sheltered annuity (TSA) plan.
Choices available to the policyowner or the beneficiary of a
life insurance policy regarding the method by which the
insurer will pay policy proceeds. Also known as optional
modes of settlement.
Simplified Employee Pension (SEP)
In the United States, a pension plan in which an employer
contributes money to an individual retirement account (IRA)
for each employee covered by the plan. The IRA is owned by
the employee, not the employer. A SEP is especially useful
to employers who cannot afford the time or money needed to
administer and maintain a more complicated pension plan.
SEPs may also be used by self-employed persons.
Single Premium Annuity
An annuity that is purchased with only one premium payment.
A single premium annuity can be an immediate annuity or a
Single-Premium Deferred Annuity (SPDA)
A deferred annuity for which only one premium payment is
Single-Premium Whole Life Insurance
Whole life insurance purchased with a single, lump-sum
Single Purchase Annuity Contract
A group contract in which a single premium is applied to
purchase annuities for participants in a pension plan that
is terminating. Immediate annuities are purchased for
current retirees in the plan, and deferred annuities are
purchased for participants who have not yet reached
Split-Dollar Insurance Plan
A type of business insurance in which an employee is covered
by individual life insurance that is paid for jointly by the
employee and the employer. The employee names the
beneficiaries. Each year the employer pays the portion of
the premium that is equal to the increase in the policy's
cash value for that year, and the employee pays the balance
of the premium. If the employee dies, the employer will
receive an amount of the proceeds equal to the cash value of
the policy, while the beneficiaries of the policy will
receive the remaining benefits.
Spouse and Children's Insurance Rider
A rider that may be added to a permanent life insurance
policy to provide term insurance coverage on the insured's
spouse and children.
(1) Expense charges sometimes imposed when a policyowner
surrenders a universal life policy. (2) A charge imposed if
the contract owner surrenders a deferred annuity policy
within a stated number of years after it was purchased.
A benefit provided by most deferred annuity policies under
which the annuity's accumulated value is paid to a
designated beneficiary if the annuitant or contract owner
dies before annuity benefit payments begin. Also called
Life insurance under which the benefit is payable only if
the insured dies during a specified period.
Trust Fund Plan
A pension plan under which employer and employee
contributions are forwarded to a trustee, who is responsible
for investing the contributions and is often responsible for
making benefit payments to plan participants. The duties of
the trustee, who may be an individual or an institution such
as a bank trust department, are spelled out in a trust
agreement. A trustee generally does not guarantee that the
trust fund will be adequate to pay current and future
(1) The person who assesses and classifies the degree of
risk that a proposed insured represents. (2) The person or
organization that guarantees that money will be available to
pay for losses that are insured against. In this sense, the
insurance company is the underwriter.
Printed instructions that indicate what evidence of
insurability is required for a given situation and which of
several optional information sources will be needed to
provide underwriters with necessary information. Sources of
information may include medical records and the results of
physical examinations. Underwriting requirements are
graduated based on the proposed insured's age and the amount
of coverage requested.
Universal Life Insurance
A form of permanent life insurance that is characterized by
its flexible premiums, flexible face amounts, and unbundled
An annuity under which the policy's accumulated value, and
sometimes the amount of monthly annuity benefit payments,
fluctuate with the performance of a separate account.
Variable Life Insurance
A form of whole life insurance under which the death benefit
and the cash value of the policy fluctuate according to the
investment performance of a separate account fund. Most
variable life insurance policies guarantee that the death
benefit will not fall below a specified minimum.
Variable Universal Life Insurance
A form of whole life insurance that combines the premium and
death benefit flexibility of universal life insurance with
the investment flexibility and risk of variable life
insurance. Also called flexible premium variable life
insurance and universal life II. See also
Whole Life Insurance
Life insurance that remains in force during the insured's
entire lifetime, provided premiums are paid as specified in
the policy. Whole life insurance also builds a savings
element (called the cash value).
Yearly Renewable Term (YRT) Insurance
Term life insurance that gives the policyowner the right to
renew the coverage at the end of each year. This renewal
right continues for a specified number of years or until the
insured reaches the age specified in the contract.