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Accrual Taxation
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.

Accrued Benefit
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.

Accumulated Value
The net amount paid by the contract owner for a deferred annuity plus interest earned, less the amount of any withdrawals and fees.

Accumulation Period
The period between the contract owner's purchase of a deferred annuity and the onset of the annuity's payout period.

Annuitant
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.

Annuity
(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.

Annuity Units
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.

Assets
All things of value owned by an individual or organization.



Beneficiary
The person or party the owner of an insurance policy names to receive the policy benefit if the event insured against occurs.

Business-Continuation Insurance
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.

Buy-Sell Agreement
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 insurance policy.



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.

Cash Value
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.

Claim
A request for payment under the terms of an insurance policy.

Claimant
The person or party making a formal request for payment of benefits due under the terms of an insurance contract.

Confirmation Certificate
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.

Contribution Limit
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.



Death Benefit
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.

Death Claim
A request for payment under the terms of a life insurance policy.

Deferred Annuity
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 purchased.

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 retirement.

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 plan.

Demutualization
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.

Dividend
(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.



Estate Plan
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.

Exclusions
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 self-inflicted injuries.



Face Amount
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 contract.



Immediate Annuity
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 life insurance.

Individual Insurance
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.

Insured
(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.)

Investment-Sensitive Insurance
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 company.



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.

Level Premiums
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.



Maturity Date
(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 annuity date.

Medicaid
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.

Mortality Rate
The frequency with which death occurs or is expected to occur among a defined group of people.

Mortality Table
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 securities business.

Net Asset Value (NAV)
The value or purchase price of a share of stock in a mutual fund.

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.



Option
A choice that a policyowner can make when deciding how to apply settlements, dividends, or non-forfeiture values.



Paid-Up Policy
An insurance policy that requires no further premium payments.

Payout Period
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.

Policy
A written document that contains the terms of the contractual agreement between an insurance company and policyowner.

Policyowner
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.

Portfolio
(1) A group of investments managed or owned by an individual or organization. (2) All of the products offered by an insurance company.

Premium
The payment, or one of a series of payments, required by the insurer to put an insurance policy in force and keep it in force.

Present Value
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.



Qualified Plan
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.



Registered Representative
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 broker-dealer.

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.

Renewal Provision
(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.

Rider
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.

Rollover
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 account.



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 (CODA).

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.

Settlement Options
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 deferred annuity.

Single-Premium Deferred Annuity (SPDA)
A deferred annuity for which only one premium payment is made.

Single-Premium Whole Life Insurance
Whole life insurance purchased with a single, lump-sum premium.

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 retirement age.

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.

Surrender Charge
(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.

Survivor Benefit
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 death benefit.



Term Insurance
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 pension benefits.



Underwriter
(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.

Underwriting Requirements
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 pricing factors.



Variable Annuity
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 investment-sensitive insurance.



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.

 

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