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The pre-licensing texts we develop are State specific. They are not industry generic texts developed in large quantities for multi-state use. All law and regulatory information is included in each text. Our text and course developers are experienced insurance professionals, educators and trainers with more than 100 years of collective experience.
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GLOSSARY OF LIFE INSURANCE TERMS
ACCIDENT — An unforeseen, unintended, unexpected event, or fortuitous event that causes death, injury or damage.
ACCIDENTAL DEATH AND DISMEMBERMENT INSURANCE — A form of insurance affording benefits in the event of accidental death; the accidental loss of sight, speech or hearing; loss of use of limbs (i.e., paralysis); or loss of (a) member(s), such as an arm or a leg.
ACCIDENTAL DEATH BENEFIT — A lump sum payment for loss of life due to an accident that was the direct cause of death. The cause of the death must be accidental for a benefit to be payable under the policy.
ACTUARY — A person who calculates policy rates, reserves and dividends and makes other applicable statistical studies and reports.
ADVERSE SELECTION — The tendency of a disproportionate number of poor risks to buy insurance or maintain existing insurance in force (i.e., the selection against the insurance company). Sound understanding reduces adverse selection.
AGE CHANGE — The date halfway between birthdays when the age of the applicant changes to the next higher age. With some insurers, the age is based upon the applicant's age at his nearest birthday. In others, it is based upon the age of his last birthday.
AGENT — An authorized representative of an insurer who is licensed to sell life insurance and annuity contracts. An agent represents the insurer who sponsors him or her.
ALIEN INSURER — This is an insurer organized under the laws of a country other than the United States (i.e., Sun Financial Services of Canada).
ANNUITANT — The individual to whom monthly income is paid by an annuity.
ANNUITY — A contract between an insurer and owner affording periodic income payments for a fixed period of time or during the lifetime of an annuitant. It maybe defined as the systematic reimbursement or liquidation of an estate.
ANNUITY CERTAIN — An annuity that provides a benefit payment payable for a specified length of time regardless of whether the annuitant lives or dies.
APPLICATION — A form completed by a prospective policy owner that becomes part of the entire contract. The application contains important personal statements including the health history of a proposal insured.
ASSIGNEE — An individual to whom the rights under a life insurance contract are transferred.
ASSIGNMENT — The act of transferring ownership rights of a life insurance policy by the owner to a third party (i.e., the assignee).
ATTAINED AGE — The age that a person or an insured has attained on a given date. For life insurance purposes, the age is based on either the nearest birthday or the last birthday, depending upon the practices of the insurance company involved. This is also referred to as “current age.”
AUTOMATIC PREMIUM LOAN (AUTOMATIC PREMIUM ADVANCE) — A provision in a life insurance policy that states that if the policy owner fails to pay a premium by the end of the grace period, the amount of the premium due will be loaned to the insured automatically from the policy’s cash value. However, the cash value of the policy must be sufficient to cover the automatic loan. Generally, the policy owner must request that this provision be made a part of the policy at the time of application (they may also request it once the contract takes effect).
BENEFICIARY — The person(s) designated to receive policy proceeds in the event of the insured's death. Policies may include a primary, contingent (secondary) or tertiary beneficiary.
BINDING RECEIPT (Unconditional Receipt) — Insurance becomes effective on the date of the receipt and continues for a specified period of time or until the insurer declines the application.
CASH REFUND ANNUITY — A life annuity contract which provides that upon the death of the annuitant, a beneficiary will receive a lump sum payment that represents the difference between the amount the annuitant paid to the insurer and the total income payments received by the annuitant.
CASH SURRENDER VALUE — The amount that is available in cash upon the surrender of a policy by the owner before or after the policy matures (as a death claim or otherwise).
CERTIFICATE OF INSURANCE — A document containing information regarding the master policy of a group indicating that an employee has coverage.
CLAIM — The demand to an insurer for the payment of benefits under a policy.
COMMISSION — Compensation or payments made by an insurer to a producer for the sale of an insurance policy.
COMMON DISASTER CLAUSE — This provision defines the method of the payment of the proceeds of the policy by the insurer if the insured and the named beneficiary die simultaneously in the same accident.
CONCEALMENT — Failure by an applicant to disclose in his or her application a material fact that is relevant to the acceptance or the declination of an application for insurance coverage.
CONDITIONAL RECEIPT — A receipt provided for the payment of the first premium (accompanying the application), which makes coverage effective under the contract if the risk is approved as applied for, subject to the other conditions set forth in the receipt.
CONSIDERATION — One of the requirements of a valid contract. The representations on the application and the premium is the policy owner’s consideration. The insurance company's “promise to pay” is its consideration.
CONTINGENT BENEFICIARY (SECONDARY) — A person who is entitled to a death benefit only after if there is no primary beneficiary alive when the insured dies.
CONTRIBUTORY PLAN — A term applied to a group insurance plan under which both the employee and the employer contribute to premium payment. This may also be referred to as a shared premium plan.
CONVERSION PRIVILEGE — The right granted to the policy owner to change coverage from term life to whole life. This privilege is also available to an employee if he or she wishes to change group term coverage to permanent whole life insurance.
CREDIT LIFE INSURANCE — Life insurance designed to pay the balance of a loan if the insured dies before the loan has been repaid in full. Generally, credit life insurance is sold by a lender or finance company.
DEATH BENEFIT — The amount that is paid upon the death of the insured. This is also called the face amount, coverage amount or policy proceeds.
DEATH CLAIM — A completed form that proves the insured’s death. This must be filed with the insurer along with a copy of the death certificate in order to receive policy proceeds.
DEFERRED ANNUITY — A classification of an annuity where income payments commence more than one year after the payment of the first (or single) premium to the insurer, usually at retirement.
DIVIDEND — A refund of part of the premium under a participating policy or a share of surplus funds. They are derived from savings in mortality and expenses.
DIVIDEND OPTIONS — The owner of a participating life insurance policy is granted several choices in which to receive or use dividends earned:
• Receive the dividend in cash
• Use it to reduce the premium
• Apply it to purchase paid-up additional amounts of life insurance
• Leave it to accumulate at interest
• Use it to purchase one year term insurance
DOMESTIC INSURER — This is an insurer conducting business in the State in which it was organized or chartered. A company that has its home or principal office in the State in which it is conducting business.
ENDOWMENT — A whole life policy that, following an endowment period, pays a stated amount to the insured. If the insured dies during the endowment period, the face amount of the policy is paid to the primary beneficiary.
EVIDENCE OF INSURABILITY — Any statement or proof of a person's health history and current health status that qualifies that person for coverage.
EXCEPTIONS — Provisions in a policy that eliminate coverage for specified causes of death.
EXCLUSIONS — Another name for exceptions.
EXPERIENCE RATING IN GROUP INSURANCE — Premium is computed on the basis of past losses and expenses incurred by the insurer in the settlement of claims and other expenses involving a particular group.
EXTENDED TERM INSURANCE — A non-forfeiture option available when a policy is surrendered in which the same face amount of the policy is continued in force for a specified additional period of time. However, the coverage has changed from permanent to temporary protection.
FACE AMOUNT — Another name for the death benefit of a policy.
FACILITY OF PAYMENT CLAUSE — A provision in a policy that permits the insurer to pay insurance proceeds to persons other than the insured, the designated beneficiary or the estate of the insured in order to pay burial expenses.
FAMILY INCOME POLICY — A policy that combines a whole life policy with a decreasing term rider in order to provide a death benefit together with monthly income payments to the beneficiary. Monthly income payments are made only from the date of death until the maturity date of the contract. Then the lump sum part of the whole life coverage is paid.
FAMILY MAINTENANCE POLICY — This type of policy combines whole life insurance and a level term rider. It provides for the payment of a monthly income during a stated period of years once the insured dies. The monthly income is payable from the date of death to the end of the pre-selected period. The payment of the face amount of the policy is payable at the end of the pre-selected period.
FAMILY POLICY — A policy covering the entire family. Whole life insurance covers the primary insured (i.e., breadwinner) with varying amounts of level term on the rest of the family.
FOREIGN INSURER — This is an insurer conducting business in a State other than the State in which it was organized or chartered. This classification of insurer is licensed to conduct business in a particular State(s) but its principal office is situated in another State. For instance, Aetna Life and Casualty of Hartford, Connecticut is a domestic carrier in the State of Connecticut. Aetna is also authorized in the State of New York. Therefore, Aetna operates in New York as a foreign insurer.
GENERAL AGENT — A General Agent is given supervisory authority over the agents under his or her jurisdiction. Usually he or she performs the following functions: selecting, writing and servicing the insurance business in force in his or her territory. Generally, the General Agent signs contracts with agents to sell and service the insurer’s policies and contracts. Usually, a General Agent is not an employee of the Life Insurance Company but self employed like an independent agent.
GRACE PERIOD — A specified period of time after a premium payment is due, during which the protection of the policy continues even though the payment for the renewal premium has not as yet been received.
IMMEDIATE ANNUITY — The income commences one, three, six, or twelve months after purchase.
INCONTESTABLE CLAUSE — A clause that makes the policy indisputable or not contestable regarding the statements made by the insured in the application after a specified period of time (two years) has elapsed.
INDIVIDUAL INSURANCE — A policy which affords protection to a policyholder. Sometimes it is called personal insurance.
IRREVOCABLE BENEFICIARY — The policy owner may not change the designated beneficiary without the beneficiary’s consent.
INSPECTION REPORT — A report that contains general information regarding the health, habits, finances and reputation of an applicant. This report is developed by a firm that specializes in rendering this type of service.
INSTALLMENT REFUND ANNUITY — The same as a cash refund annuity, except that money is refunded in installment payments and the insurer makes payments to the designated beneficiary until the total of the payments made to the annuitant and the beneficiary equals the consideration paid.
INSURABLE INTEREST — The economic or financial interest of a third-party policy owner in an insured due to a blood relationship, marriage, business or financial connection. Insurable interest in life insurance must exist at the time of application.
INSURANCE — The transfer of risk from one party to another through a legal contract.
INSURED — The individual covered by a life insurance policy.
INSURING CLAUSE — The policy provision that describes the scope and limits of the coverage afforded. It also identifies the parties to the contract and the annual premium.
JOINT AND LAST SURVIVOR ANNUITY — An annuity issued on the lives of two or more persons that is payable as long as the survivor lives.
JOINT LIFE INSURANCE — A life insurance policy covering the lives of two or more persons that pays a death benefit and ends when the first insured dies. This is also referred to as “first to die” insurance.
JUVENILE INSURANCE — Life insurance policies owned by an adult and written on the lives of children.
KEY EMPLOYEE INSURANCE — An individual policy designed to reimburse an employer for the loss of a key employee's service and contributions due to death. The employer generally pays the premium and is the owner of the contract.
LAPSE — This term means that the policyholder failed to pay the premium within the grace period. Therefore, no coverage exists once the policy lapses.
LEVEL PREMIUM — A premium that remains constant, fixed or predetermined throughout the life of a policy.
LIFE EXPECTANCY — The average number of anticipated years of life remaining for individuals who are the same age in accordance with the mortality table indicated in the policy.
LIFE INSURANCE — Insurance upon the lives of human beings that creates an immediate and guaranteed estate upon the death of an insured or at the end of a predetermined period (in whole life insurance this is age 100).
LIMITED PAYMENT LIFE INSURANCE — A plan of life insurance under which the premiums are payable for a specified number of years after which the policy remains in effect for life without any additional payments. However, the policy still does not mature until age 100.
LOAN VALUE — The amount specified in a whole life policy that the insurer will lend to a policy owner from the cash value at the rate of interest the insurer charges as identified in the contract.
MATURITY — The date on which a policy becomes payable due to the death of the insured or as a result of an insured's living to the end of a specified period(i.e. age 100). In whole life insurance, the cash value is designed to equal the face amount at maturity.
MISREPRESENTATION — A false statement that an applicant makes on an application for an insurance policy. An omission (i.e., concealment) of a material fact can also be construed as a misrepresentation. A misrepresentation is material if the insurer, having known the true facts, would have declined the application as applied for by the applicant. Statements made by an applicant or the owner are considered representations and not warranties.
MORAL HAZARDS — Habits, morals or financial practices of an insured that increase the possibility or extent of a loss.
MORTALITY TABLE — A statistical table that indicates the probability of death and survival at each age up to age 100. This table informs us of the “death rate” at any particular age from 0 through 100.
MUTUAL INSURANCE COMPANY — A life insurance company owned and controlled by its policy holders. Mutual insurance companies issue participating policies which may pay dividends to policy holders.
NET AMOUNT AT RISK — The difference between the face amount of a policy and the reserve.
NON - CONTRIBUTORY PLAN — A group employee benefit plan under which the employer pays for the full cost of the benefits for his employees. This is an “employer pay all” plan.
NON - FORFEITURE FACTOR — An actuarial figure, indicated in the policy's table of loan and surrender value that is used to calculate the non-forfeiture values of the policy.
NON - FORFEITURE VALUES — Benefits required by law to be made available to the policy owner in the event that he surrenders the policy by discontinuing premium payments. These values state that the owner will not forfeit or lose all that he has invested in the policy.
NON-MEDICAL LIFE INSURANCE — Insurance that is issued without requiring the applicant to submit to a medical examination. The insurer relies on the applicant's answers to the questions regarding his physical condition, personal references and inspection reports. However, the insurance company retains the right to require a medical examination if an investigation indicates a need for one.
NON - PARTICIPATING INSURANCE — A type of life insurance policy issued by a stock insurer. It is an insurance contract that does not pay dividends to the policyholders.
ORDINARY LIFE INSURANCE — Insurance policies of $1,000 or multiples thereof that provide coverage for the entire life of the policyholder and for which the premiums are payable until death. It is also referred to as whole life insurance, straight life insurance, or continuous premium life, and is different from term insurance in that it includes a cash value build-up.
PAID-UP ADDITIONS — An additional amount of insurance purchased through dividends (single premium insurance) that increases the amount of protection provided.
PAID-UP INSURANCE — Life insurance on which future premium payments are not required. Frequently, the term is used to identify a ten, twenty or thirty payment life insurance policy on which 10, 20 or 30 annual premium payments have been paid. Even though the policy is “paid-up” at the end of the payment period, the contract does not mature until age 100.
PARTICIPATING POLICY — A life insurance policy that entitles the policy holder to share in the divisible surplus of the insurer through dividends.
PAYOR CLAUSE — A clause that provides for the waiver of premiums on a policy covering a child following the death or the total disability of the adult owner (i.e. premium payor).
PENSION TRUST — A plan under which an employer provides retirement benefits for his employees with favorable income-tax treatment for the employer and employee. Generally, policies are issued individually as special pension plan life insurance policies and/or annuity contracts.
PERMANENT DISABILITY — A disability that is expected to continue for the lifetime of the insured. Usually, the disability is presumed to be permanent after it has continued for a specified period (e.g. one year).
PHYSICAL HAZARD — That type of hazard that arises from the physical characteristics of an individual. It may exist because of a physical condition present at birth, past medical history or a current condition.
POLICY — The printed document or contract issued by the insurer to the policy owner providing insurance coverage on the life of an insured..
POLICY FEE — A small transaction fee charged by some insurers for the first or subsequent years of the life of an insurance policy, in addition to the regular premium.
POLICY LOAN — A loan made by an insurer to a policy owner under his or her policy.
POLICY TERM — The period of time for which a policy remains in existence.
PREMIUM — The initial payment and subsequent periodic payments required to keep a policy in force.
PRIMARY BENEFICIARY — The first person entitled to policy proceeds upon the death of the insured. Proceeds are paid income tax free.
PROCEEDS — The net amount of money that is payable by the insurer upon the death of an insured or when the policy matures. This is also called the policy’s face amount, coverage amount, coverage limit or death benefit.
RATED — A method under which an insurer may issue a policy for a substandard risk by increasing the premium based on the increased risk involved.
REBATING — Paying, offering or giving anything of value not specified in the policy to any person as an inducement to apply for or renew an insurance policy. Rebating is illegal in most States.
REDUCED PAID-UP INSURANCE — A non-forfeiture option in a policy used when the contract is surrendered that provides for the continuation of the insurance at a reduced face amount.
REINSTATEMENT — The resumption of coverage under a policy that has lapsed. Before an insurer allows this, the insured must prove insurability and all back premiums must be paid.
REINSURANCE — The underwriting by one insurance company (called the reinsurer) of part or all of an individual risk written by another insurer (called the ceding company).
RENEWABLE TERM LIFE INSURANCE — Insurance that may be renewed at the end of the policy term without evidence of insurability. The premium increases at the end of each term and is based on the attained age of the insured at the time of renewal.
RENEWAL — The continuance of coverage under a policy beyond the initial period.
RESERVE — The combined funds required by law that are set aside by an insurer to assure the payment of future claims.
REVOCABLE BENEFICIARY — The designated beneficiary may be changed at the owner’s request without the consent of the beneficiary.
RIDER — This is an additional attachment to a policy. Riders may provide an additional benefit (i.e., benefit rider) or restrict coverage (i.e., impairment rider). Benefit riders generally require an additional premium such as the waiver of premium rider, accidental death benefit rider, payor rider, guaranteed insurability rider or the accelerated benefits rider.
SETTLEMENT OPTIONS — Methods by which a beneficiary may choose to receive life insurance policy proceeds.
SINGLE PREMIUM — The payment of one premium that is large enough to cover the cost of a life or annuity contract for life. Also known as a lump sum premium.
STANDARD PROVISIONS — Certain provisions that must be included in a life insurance policy such as the incontestable clause, grace period, assignment, reinstatement and so forth.
STOCK LIFE INSURANCE COMPANY — A life insurance company owned and controlled by its stockholders who share in its divisible surplus. Generally, stock insurance companies issue non-participating life insurance. However, some of them also issue participating life insurance.
SUBSTANDARD RISK — An applicant whose physical condition does not meet the normal minimum standards. If the substandard classification is due to adverse health, the application may be declined or written with a “rated-up” premium. An applicant may be in excellent health but considered substandard due to his ro her personal activities, hobbies or avocations (i.e., scuba diving, sky-diving, etc.).
SUICIDE CLAUSE — A provision specifying that in the event the insured commits suicide within two years from the date the policy was issued, the insurer’s liability is limited to the payment of a single sum equal to the premiums actually paid.
SURPLUS — The amount by which the assets of an insurer exceed its liabilities.
SYSTEMATIC PREMIUM PLAN — A plan under which the policy owner authorizes a bank to deduct the necessary funds from his or her account each month to pay a premium that is forwarded to the insurer by the lender.
TERM LIFE INSURANCE — Temporary life insurance that is generally designed to afford coverage for a limited number of years. The policy includes no cash value and can be described as pure protection.
TOTAL DISABILITY — An illness or injury that prevents an insured from continuously performing the duties pertaining to his or her occupation or from engaging in any other type of work for remuneration.
TWISTING — An illegal sales practice involving a producer illegally or unfairly inducing to lapse his or her present insurance policy and purchase another. This is not the same as replacement. Replacement is a legal activity.
UNDERWRITING — The analysis of information pertaining to an applicant that was obtained from various sources and the determination of whether or not the insurance should be issued as requested, offered at a higher premium or declined.
WAIVER — To voluntarily relinquish or abandon a known right under an insurance contract. This is a legal principle that protects the consumer if an insurer waives its rights under an insurance contract.
WAIVER OF PREMIUM — A benefit rider available to be included in a life insurance policy that waives the payment of premiums after the policy owner has been totally disabled for a specific period of time (i.e., six months). Once the policy owner has been disabled for six consecutive months, any premium paid during that time will be refunded by the insurer retroactively. Future premiums will be waived on a month to month basis until the disabled party returns to work. Proof of disability from a medical professional is required.
WAR CLAUSE — A clause in the exclusive provision of a life insurance policy that limits an insurer’s liability if death is caused as a result of war.
WARRANTIES AND REPRESENTATIONS — Most State laws specify that all statements by the applicant on the application are considered to be representations and not warranties. A warranty must be absolutely and literally true. A breach of warranty may be sufficient to void the policy whether or not the warranty is material and whether or not such breach of warranty had contributed to the loss. A representation need only be substantially true to the best of the applicant’s knowledge. Generally, a representation is considered to be fraudulent if it relates to a situation that would be material to the risk and that the applicant made with fraudulent intent.
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