Insurance Glossary

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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z


A


Absolute Assignment

  • An assignment by which a property owner permanently transfers all of the ownership rights in a particular property to another party.

Accidental Death Benefit

  • A supplementary life insurance policy benefit under which the insurer pays the beneficiary an amount of money in addition to the basic death benefit if the insured dies as a result of an accident.

Accumulation Period

  • The time period between the date that the contract owner purchases the annuity and the date that periodic income payments begin.

Accumulation Value

  • The amount paid for the annuity plus interest earned, less the amount of any withdrawals or fees.

Actuary

  • An expert in the mathematics of insurance, annuities, and financial instruments.

Advisor / Agent

  • An insurance company representative licensed by the state who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer.

Amortization

  • The process of eliminating a debt through equal, periodic payments.

Annuitant

  • The person whose lifetime is used to measure the length of time periodic income payments are payable under an annuity contract.

Annuity

  • A contract under which an insurance company promises to make a series of periodic income payments to a named person in exchange for a premium or a series of premiums.

Antiselection

  • The tendency of individuals who believe they have a greater-than-average likelihood of loss to seek insurance protection to a greater extent than do those who believe they have an average or a less-than-average likelihood of loss.

Application

  • A signed statement of facts made by a person applying for life insurance and then used by the insurance company to decide whether or not to issue a policy. The application becomes part of the insurance contract when the policy is issued.

APS (Attending Physician’s Statement)

  • A report by a physician who has treated, or who is currently treating a proposed insured.

Articles of Incorporation

  • A document that describes the essential features of a proposed company.

Assignment

  • The legal transfer of one person’s interest in an insurance policy to another person.

Assured

  • A party who is a potential beneficiary of an insurance contract.

Attained Age

  • The current age of an insured.

Automobile Insurance

  • A type of insurance that protects an insured from financial losses arising from operations of a vehicle.

B


Bankruptcy

  • A condition that results when a court finds that the debts of a borrower exceed the assets, and the income is not sufficient to provide a reasonable expectation that the debts will be repaid in full in the future.

Beneficiary

  • The person or legal entity that receives annuity benefits, if any, that the insurer pays upon the death of the annuitant.

Bond

  • A security that represents a debt owed by the issuer to the bondholder.

Bondholder

  • The investor who owns a bond.

Branch Office

  • A field office that is established and maintained by the insurance company.

Broker

  • A “middleman” that matches buyers of securities with sellers of those securities.

C


Call Centre

  • A customer service unit composed of telephone representatives trained to handle questions about the insurer’s product lines.

Cancellation

  • The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Cash Surrender Value

  • The amount, before adjustments for factors such as policy loans, that the owner of a permanent life insurance policy is entitled to receive if the policy does not remain in force until the insured’s death.

Ceding Company

  • In a reinsurance relationship, an insurance company that transfers all or part of a risk.

Certificate of Incorporation

  • A document that grants a corporation its legal existence and its right to operate as a corporation.

Coinsurance

  • A percentage of all expenses in excess of the deductible that the insured must pay.

Cold Calling

  • A prospecting method, in which an advisor writes, calls or visits prospects with whom she has had no prior contact.

Collateral

  • Property pledged to secure repayment of a loan and subject to seizure by the lender if the borrower fails to repay the loan.

Collateral Assignment

  • An assignment by which a property owner temporarily assigns the monetary value of a particular property, such as a life insurance or annuity policy as collateral for a loan.

Commission

  • A fee paid to a brokerage firm in exchange for executing a buy or sell order.

Compounding

  • The process of determining a future value when compound interest is applied.

Compound Interest

  • Interest payable both on the principal and on all accumulated interest.

Comprehensive Insurance

  • Insurance that covers an insured for losses to the vehicle caused by perils other than collision, such as theft.

Contract Owner

  • The individual or entity who applies for and purchases an annuity contract.

Contributory Plan

  • A group insurance plan under which individual group members must contribute some or all of the premium in order to be covered under the plan.

Convertible Term Insurance

  • A type of term life insurance that gives the policyowner the right to convert the term policy to a permanent life insurance policy.

Cross-selling

  • The process of offering a variety of insurance and financial services products to a customer.

D


Decreasing Term Insurance

  • A type of term life insurance that provides a death benefit that gets smaller throughout the term.

Deductible

  • A flat amount that the insured must pay before the insurer will make any benefit payments.

Deferred Annuity

  • An annuity under which benefit payments are scheduled to begin more than one annuity period after the annuity is purchased.

Defined Benefit Pension Plan

  • A pension plan that defines the amount of the benefit that the plan sponsor guarantees a participant will receive at retirement.

Defined Contribution Pension Plan

  • A pension plan that describes the annual contribution that the employer will deposit into the plan on behalf of each plan participant.

Disability Income Insurance

  • A type of health insurance designed to compensate an insured person for a portion of the income lost because of a disabling injury or illness.

Dividend

  • A payment of a business’ earnings to its shareholders.

E


Elimination Period

  • See waiting period.

Equity

  • The ownership interest a borrower has built up in property.

Estate Planning

  • A type of planning to help a client conserve, as much as possible, the personal assets that the individual wants to pass on to his heirs at his death.

Expiry

  • The date a term policy coverage ends or when a policy loan plus interest exceeds the cash surrender value of a permanent plan.

F


Face Amount

  • The dollar amount stated in a life insurance policy that is payable as a death benefit when the insured dies.

Financial Institution

  • A business that owns primarily financial assets, such as stocks and bonds, rather than fixed assets, such as equipment and raw materials.

Financial Services Industry

  • An industry composed of financial institutions that offer products and services that help consumers, businesses and government save, borrow, invest and otherwise manage money.

First-year Commission

  • A commission paid to an advisor who sells a policy and is equal to a stated % of the amount of the premium the insurer receives during the first policy year.

Fixed Annuity

  • A type of annuity contract that guarantees the safety of the investment principal and a minimum rate at which the contract’s accumulation value will earn interest.

Fixed Payout Period

  • An annuity payout option in which the insurer makes a series of fixed amount payments to the payee throughout the payout period.

Formal Contract

  • A contract that is enforceable because the parties to the contract met certain formalities concerning the form of the agreement.

Future Value

  • The amount of money that you have invested plus what you will earn in interest over a certain period of time.

G


Grace Period

  • A period of time between the date of a purchase and the date the lender begins to charge interest during which no interest accrues.

Gross Premium

  • The premium amount an insurer charges a policyowner to keep a policy in force.  The gross premium is equal to the policy’s net premium and the loading.

H


Health Insurance

  • Insurance covering medical expenses or income loss resulting from injury or sickness.

Homeowner’s Insurance

  • A type of insurance that protects an insured from financial losses resulting from damage to the home or its contents or resulting from being held liable for the losses of others suffered while on the property.

I


 Increasing Term Insurance

  • A type of term life insurance that provides a death benefit that grows larger throughout the term.

Indemnity Medical Expense Insurance

  • A type of health insurance that protects the insured against a specific type of loss – the loss of money paid to cover medical expenses.

Informal Contract

  • A contract that is enforceable because the parties to the contract met requirements concerning the substance of the agreement rather than requirements concerning the form of the agreement.

Insolvency

  • The inability of an insurer to maintain capital and surplus above the minimum standard of capital and surplus required by law.

Insurable Interest

  • The likelihood that a policy-owner or beneficiary of an insurance policy will suffer a genuine loss or detriment if the event insured against occurs.

Insurance

  • A mechanism for transferring the risk of financial loss from an individual or entity to an insurance company.

Insured

  • The person whose life or health is insured under an insurance policy. 

Insurer

  • The insurance company assuming the risk under an insurance contract.

Irrevocable Beneficiary

  • A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policyowner has the right to change the beneficiary designation only after obtaining the beneficiary’s consent.

L


Lapse

  • The effect on an insurance policy if a renewal premium has not been paid by the end of the grace period.

Level Term Insurance

  • A type of term life insurance that provides a death benefit that remains the same throughout the term.

License

  • A document providing legal authority for an insurer to conduct an insurance business in a particular country/state.

Life Assured

  • The person on whose life the insurance is carried by the insurance company.

Life Insurance

  • Insurance that provides protection against the economic loss caused by the death of the insured.

Limit of Liability

  • The most an insurance company agrees to pay in the case of loss.

Loading

  • The total amount added to a policy’s net premium to cover all of the insurer’s costs of doing business.

M


 Morbidity Rate

  • The rate at which sickness and injury occur within a defined group of people.

Morbidity Table

  • A chart that shows the rates of sickness and injury occurring among given groups of people categorized by age.

Mortality Rate

  • The rate at which insured people are expected to die.

Mortality Table

  • A chart that shows how many people in each age group may be expected to die in a particular year.

Multiplication Factor

  • Is a factor used to convert an annual premium to monthly, quarterly or semi-annually premium.

N


Nonparticipating Policy

  • Insurance policy under which the policy-owner does not share in the insurance company’s surplus. (a.k.a. nonpar policy)

O


Orphan Policy

  • A policy for which the original advisor is no longer available to provide service.

P


Paid up

  • Insurance on which all required premiums have been paid.

Part I

  • The part of the life insurance application that identifies the proposed insured and the applicant, specifies the amount and type of coverage requested and provides basic insurability information.

Part II

  • The part of the life insurance application that consists of medical information about the proposed insured.

Participating Policy

  • An insurance policy under which the policy-owner shares in the insurance company’s surplus. (a.k.a. par policy)

Payout Period

  • The time period during which income payments under an annuity are paid.

Pension

  • A lifetime monthly income benefit that begins at retirement.

Pension Plan

  • An agreement under which an employer establishes a plan to provide its employees with an income benefit that begins at retirement.

Permanent Life Insurance

  • A type of life insurance that provides coverage for the insured’s entire lifetime.

Persistency

  • The retention of business that occurs when a policy remains in force as a result of the continued payment of the policy’s renewal premiums.

Personal-Producing General Agent

  • A commissioned sales agent who generally works alone, is not housed in one of a company’s field offices, and engages primarily in personal production.

Policy

  • A written document that contains the terms of the contractual agreement between an insurance company and the owner of the policy.

Policy Anniversary

  • The date on which coverage under an insurance policy became effective.

Policy Benefit

  • A stated amount of money an insurance company agrees to pay under an insurance policy when a specific loss occurs.

Policy Fee

  • The processing cost for the allocation of monthly, quarterly, semi-annually and annually premiums.

Policy Form

  • A standardized contract form that shows the terms, conditions, benefits and ownership rights of a particular insurance product.

Policy Lapse

  • The termination of an insurance policy because of nonpayment of renewal premiums.

Policy Loan

  • A loan that an insurer makes to the owner of a permanent life insurance policy and that is secured by the policy’s cash value.

Policy Owner

  • The party transferring the risk under an insurance contract.

Policy Rider

  • An amendment to an insurance policy that either expands or limits the benefits payable under the policy.

Premium

  • A payment, or one of a series of payments, that an insurer charges to put an insurance policy in force and to keep it in force.

Present Value

  • The amount of money that you must invest today at a specified interest rate to accumulate a specified amount by a certain future date.

Pure Risk

  • A risk that involves no possibility of gain.

R


Reduced Paid up

  • A form of insurance available as a nonforfeiture option. It provides for continuation of the original insurance plan, but for a reduced amount.

Reinsurance

  • A form of insurance that enables an insurer to be indemnified or reimbursed in the event of covered losses claimed under insurance policies the insurer has issued.

Reinsurer

  • A company that assumes a risk from a ceding company.

Renewable Term Insurance

  • A type of term life insurance that gives the policyowner the option to renew the policy at the end of the term, although typically at a higher premium based on the insured’s attained age.

Revocable Beneficiary

  • A life insurance policy beneficiary who has no right to the policy proceeds during the insured’s lifetime because the policyowner has the unrestricted right to change the beneficiary designation during the insured’s lifetime.

Risk

  • The possibility of an unexpected outcome, which is typically a loss.

S


Self Insurance

  • A risk management technique by which a person or business accepts financial responsibility for losses associated with specific risks.

Single Premium Annuity

  • An annuity that is purchased by the payment of one lump sum premium.

Solvency

  • The ability of an insurer to pay its debts, policy benefits, and operating expenses when they come due.  The ability of an insurer to maintain capital and surplus above the minimum standard of capital and surplus required by law.

Speculative Risk

  • A risk that involves three possible outcomes: loss, gain, or no change.

Standard Risk

  • A proposed insured who has a likelihood of loss that is not significantly greater than average.

Stock

  • A security that represents an ownership interest in a company.

Substandard Risk

  • A proposed insured who has a significantly greater-than-average likelihood of loss.

Sum Assured

  • A stated amount of money an insurance company agrees to pay under an insurance policy when a specific loss occurs.

Surrender Value

  • See cash surrender value.

T


Term Life Insurance

  • Life insurance that covers the life of the insured for a specified period of time.

Term to Maturity

  • The period of time during which scheduled loan payments must be made in order to repay a loan.

Third-Party Policy

  • A life insurance policy that one person purchases on the life of another person.

Total Disability

  • A disability that keeps an insured from doing the essential duties of his regular occupation.

U


Underwriter

  • A person in an insurance company, who evaluates risks, accepts or declines applications and determines the appropriate premium amount to charge acceptable risks.

Underwriting

  • The process of identifying and classifying the degree of risk represented by a proposed insured.

Universal Life Insurance

  • A type of life insurance characterized by flexible premiums, face amounts and death benefit amounts.

V


Valued Contract

  • An insurance policy that specifies the amount of the benefit that will be payable when a covered loss occurs, regardless of the actual amount of the loss that was incurred.

Variable Life Insurance

  • A type of life insurance characterized by death benefits and cash values that fluctuate according to the investment performance of specific accounts.

Variable Universal Life Insurance

  • A type of life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance.

Vested commission

  • A commission that is guaranteed payable to an advisor even if the advisor no longer represents the company when the commission comes due.

Void Contract

  • A contract that was never enforceable at law.

Voidable Contract

A contract that is otherwise enforceable except that one party has the right to avoid her obligations under the contract without incurring legal liability.


W


Waiting Period

  • The length of time that a person must be disabled before any income benefits are payable under a disability income plan.

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