A provision added to a life insurance policy for payment of an additional benefit in case of death that results from an accident.
Actual Age
An age calculation based on a person's last birth date (actual age) for premium rate determinations.
Adverse Selection
The tendency of persons with higher risk health expectations to apply for or continue insurance coverage to a greater extent than persons with lesser health expectations.
Age Nearest Birthday
An age calculation based on a person's nearest birth date for premium rate determinations. If the person's birth date is within six months, they are considered the next age.
Age Limits
Ages below and above which an insurance company will not accept applications or renew policies.
Agent
An authorized representative of an insurance company who sells and services insurance contracts.
Amendment
Document changing the provisions of an insurance contract signed jointly by the insurer and the policyholder.
Annual Policy Statement
Individual statements, providing specific policy information and values, which are sent to policy owners on each contract anniversary.
Annuity
A contract sold by a life insurance company that provides fixed or variable payments to an annuitant, either immediately or at a future date.
Applicant
The person applying for the insurance policy. The applicant is not necessarily the owner or the insured.
Application
A statement of information made by someone applying for life insurance. The information gathered helps the life insurance company assess whether the risk presented by the applicant is acceptable to underwriters.
Assignment
The legal transfer of one person's interest in an insurance policy to another person.
Attending Physician's Statement
Information from a proposed insured's physician covering medical history and results of medical examinations. It is used to determine the appropriate underwriting classification for the proposed insured.
Authorization
Permission from the policy owner or proposed insured which allows release of information to a named party.
B
Backdating
A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at policy issue lower than it actually was in order to get a lower premium.
Beneficiary
The person(s) or corporations(s) named in the policy to receive the life insurance proceeds upon the death of the insured.
Benefits
The sum of money specified in a life insurance contract to be paid to the beneficiary when a loss occurs.
Buy-Sell Agreement
An agreement made by the owners of a business to purchase the share of a disabled or deceased owner. The value of each owner's share of the business and the exact terms of the buying-and-selling process are established before death or the beginning of disability.
C
Cancellation
The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.
Carrier
The underwriting insurance company.
Cash Surrender Value
The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse. Cash value only relates to permanent life insurance.
Change of Beneficiary Form
A form provided by the insurer that the policy owner must complete in order to change the beneficiary on a policy.
Child Rider
Rider which provides insurance to the insured's child(ren).
Claim
A request for payment of a loss which may come under the terms of an insurance contract.
Claimant
A first or third party who asserts right of recovery.
Collateral Assignment
A temporary transfer of some, but not all, policy rights to a lender to provide security for a loan.
Commission
The part of an insurance premium paid by the insurer to an agent or agent for his services in procuring and servicing the insurance.
Consideration
One of the elements for a binding contract. Consideration is acceptance by the insurance company of the payment of the premium and the statement made by the prospective policy holder in the application.
Contingent Owner
The person to succeed as owner of a life insurance policy if the original owner dies.
Contract
A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.
Contract Law
The portion of civil law that interprets written agreements between parties and resolves disputes between them.
Conversion Privilege
A privilege granted in an insurance policy to convert to a different plan of insurance without providing evidence of insurability.
Convertible Term Insurance
Term insurance which can be exchanged, at the option of the policy holder and without evidence of insurability, for another plan of insurance. Also known as credit life insurance. May take the form of term life insurance issued through a lender or lending agency to cover payment of a loan, installment purchase, or other obligation, in case of death.
Cost-of-Living Rider
Benefit that can be added to a life insurance policy under which the policy owner can purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.
Cost of pure risk
All costs related to pure risk which include, from the perspective of shareholders, retained risk, loss prevention costs and insurance costs.
Coverage
The scope of protection provided under a contract of insurance; any of several risks covered by a policy.
Customer Service Representative
Customer service representatives support the work of insurance agents with a variety of tasks that must be done within a company or agency to deliver services to and handle requests from clients.
Cumulative Premium
The total amount paid over the course of a specified amount of years.
D
Death Benefit
A payment made to a designated beneficiary upon the death of the employee annuitant.
Decreasing Term Insurance
Level Premium Term insurance with death benefits that decrease each policy anniversary. The death benefit may decrease according to a schedule that fits a declining need, such as a loan balance.
Deferred Annuity
Annuity payments that will begin at some future date.
Deferred Compensation
Arrangements by which compensation to employees for past or current services is postponed until some future date.
Disability Insurance
A form of insurance coverage that provides a portion of income lost as the result of a total or partial disability caused by either an accident or an illness.
Disability Overhead Expense
A reimbursement plan designed to cover business expenses during the total or partial disability of a professional or business person.
Dividend
A refund of part of the annual premium, which is left over after the company has set aside the necessary reserve.
E
Earned Premium
That portion of a policy's premium payment for which the protection of the policy has already been given. An insurance company is considered to have earned 75 percent of an annual premium after a period of nine months of an annual term has elapsed.
Effective Date
The date on which the insurance under a policy begins.
Electronic Funds Transfer
A transaction that allows payers to have premium payments drawn directly from their bank accounts, eliminating the need to write checks.
Elimination Period
The period of time between the date the illness or disability commences and the beginning of the benefit payment period. It is sometimes referred to as the Qualifying Period.
Endorsement
An additional piece of paper, not a part of the original contract, which cites certain terms and which, when attached to the original contract, becomes a legal part of that contract.
Endow
When an insurance policy's guaranteed cash value equals the initial death benefit, it is said to "endow" or mature. Whole Life contracts typically endow at the insured's age 100.
Estate Planning
Planning for the orderly handling and administration of an estate upon the death of the owner. This usually involves drawing up a will and setting up trusts and insurance, with the intention of minimizing loss to the estate value incurred by estate taxes and administrative expenses.
Evidence of Insurability
Any statement of proof of a person's physical condition and/or other factual information affecting his/her acceptance for insurance.
Exclusion
Provision that indicates a circumstance or event, such as an act of war, for which benefits will not be paid.
Expense Charges
The charges assessed against a policy to cover part or all of the insurance company's acquisition and maintenance expenses related to issuing and servicing the policy.
Expiration Date or Expiry
The date on which the insurance policy ceases to protect the policy owner.
F
Face Amount
The amount stated on the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions or acquired through the application of policy dividends, and can be reduced by loans or withdrawals.
Fiduciary
A person who holds something in trust for another.
Fidelity Bond
Bond that protects an employer against dishonest or fraudulent acts of employees, such as embezzlement, fraud, or theft of money.
Fifteen-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for fifteen years.
Five-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for five years.
Fixed Annuity
Annuity whose periodic payment is a guaranteed fixed amount.
Fraternal Life Insurance
Life insurance provided by fraternal orders or societies to their members.
G
General Agency System
Type of life insurance marketing system in which the general agent is an independent businessperson who represents only one insurer, is in charge of a territory, and is responsible for hiring, training, and motivating new agents.
Grace Period
A period of time after a premium due date, usually 30 or 31 days, during which an insurance policy remains in force and the overdue premium may be paid without penalty.
Guaranteed Insurability
An option that permits the policy holder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.
Group Insurance
Insurance written on a number of people under a single master policy, issued to their employer or to an association with which they are affiliated.
Group Life Insurance
Life insurance, usually without medical examination, on a group of people under a master policy. It is typically issued to an employer for the benefit of employees, or to members of an association, for example a professional membership group. The individual members of the group hold certificates as evidence of their insurance.
Guaranteed Premiums
The guaranteed maximum payment for the purchased policy.
Guaranteed Renewable Contract
A health policy which the company guarantees to renew for life or until the insured reaches a specified age, usually 65.
H
Hazard
The exposure of vulnerability to injury, loss or damage.
Head Office
The headquarters of an insurance company, that typically houses the actuarial, claims, investment, law, marketing and service areas.
I
Immediate Annuity
An annuity providing for payment to begin immediately.
Incontestability Clause or Period
Life policies provide that, except for non-payment of premiums and certain other circumstances, the policy shall be incontestable after the policy has been in force for two years during the lifetime of the insured.
Indemnification
Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.
Indemnity
Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.
Independent agent
An independent business person who usually represents two or more insurance companies in a sales and service capacity and who is paid on a commission basis.
In-Force Policy
Existing insurance policies for which the premiums are being paid or for which premiums have been fully paid.
Inspection Report
Documentation of an application or a summary statement of the proposed insured's occupation, residence, health history, lifestyle and general financial status. This report is prepared by the insurer or an investigating agency for consideration in the underwriting process.
Insurability
Acceptability by the insurer of an applicant for insurance based on factors such as the person's age, health, occupation, etc.
Insurance
A system for reducing risk by transferring the risks of several individual entities to an insurer. The insurer agrees, for a consideration (premium), to assume the specified losses suffered by the insured.
Insurance Needs Calculator
An automated program for estimating a person's life insurance needs. Also referred to as Financial Needs Analysis.
Insured
A person or organization covered by an insurance policy, including the "named insured" and any other parties for whom protection is provided under the policy terms.
Insurer
The party that provides insurance coverage, typically through a contract of insurance.
Irrevocable Beneficiary
A beneficiary that cannot be changed without their written consent.
J
Joint First-to-Die Plan
A life insurance plan that insures two or more lives and pays proceeds at the time of the first death.
Joint Last-to-Die Plan
A life insurance plan that insures two or more lives and pays proceeds at the time of the last death.
K
Key Person Insurance
Insurance designed to protect a business firm against the loss of income resulting from the death or disability of a key employee.
L
Lapse
The termination or discontinuance of an insurance policy due to non-payment of a premium.
Lapse Notice
Written notice by an insurer that the policy has lapsed.
Lapsed Policy
A policy terminated for non-payment of premiums. The term is sometimes limited to a termination occurring before the policy has a cash or other surrender value.
Level Premium
Rating structure under which the premium level remains the same throughout the life of the policy.
Level Premium Life Insurance
Life insurance for which the premium remains the same from year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The overpayments in the early years, together with the interest that is to a earned, serve to balance out the underpayments of the later years.
Level Term Insurance
A type of Term Life policy where the face value remains the same from the effective date until the expiration date.
Life Expectancy
The average number of years of life remaining for persons of a given age according to a particular mortality table.
Life Insurance
Insurance providing for payment of a specified amount on the insured's death, either to his or her estate or to a designated beneficiary; or in the case of an endowment policy, to the policy holder at a specified date.
Loan
Borrowing from the insurer and securing the amount of the loan with the cash value in the life insurance policy. If the insured dies when there is an outstanding loan balance, the amount of the loan and any unpaid interest will be deducted from the proceeds.
Long Term Care Policy
A plan designed to cover the insured's long-term care (nursing home) costs.
Lump Sum
A method of settlement whereby the beneficiary receives the entire proceeds of a policy at once rather than in instalments.
M
Material Misrepresentation
A statement made to the underwriter before acceptance of risk, which is material to his decision in accepting and rating the risk.
Mature
When an insurance policy's guaranteed cash value equals the initial death benefit, it is said to "endow" or mature. Whole Life contracts typically endow at the insured's age 100.
Maturity Value
The amount payable under a Whole Life insurance policy if the insured person lives to the last age on the mortality table on which the values of the contract were based.
Medical Examination
A medical history and exam completed by a doctor that the insurer may require of the applicant during the underwriting process – typically, paid for by the life insurer underwriting the application.
Medical Information Bureau
A data pool service that stores confidential reports on the health histories of persons who, in the past, have applied for insurance from other member companies. Most insurers subscribe to this bureau to get more complete underwriting information.
Misrepresentation
Act of making, issuing, circulating, or causing to be issued or circulated any written or verbal statement that does not represent the correct policy terms. Also, use of a name or title for any policy or class of policies that does not reflect its true nature.
Mortality
The frequency of deaths in proportion to a specific population.
Mortality Rate
The number of deaths in a group of people, usually expressed as deaths per thousand.
Mortgage Protection Insurance
A type of Term Life policy which pays off the balance of a mortgage upon the death of the insured. Typically, the death benefit decreases according to a schedule that fits the declining payoff requirements of the mortgage.
Multi-Year Premium Mode
A premium payment option where future annual premiums are paid in advance at a discount.
N
Net Cost
The out-of-pocket cost of owning any particular life insurance policy.
Non-Medical Insurance
Life insurance issued based on the insured's statement of health with no medical examination required.
O
Occupational Hazards
Occupations which expose the insured to greater than normal physical danger by the very nature of the work in which the insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected.
P
Paid-up Insurance
Insurance on which all required premiums have been paid. The term is frequently used to mean the reduced paid-up insurance available as a non-forfeiture option.
Paramedical Examination
Physical examination of an applicant by a trained person other than a physician.
Participating Policy
A life insurance policy under which the company agrees to distribute to policy holders the part of its surplus which its Board of Directors determines is not needed at the end of the business year. Such a distribution serves to reduce the premium the policy holder had paid.
Payor
The person making premium payments on a policy.
Peril
The cause of a loss insured against in a policy.
Permanent Life Insurance
Type of life insurance other than term insurance which accrues cash value and is designed for long-term, or permanent, needs of a policy holder. Includes universal and variable life, among others.
Policy
The legal document issued by the company to the policy holder, which outlines the conditions and terms of the insurance; also called the policy contract or the contract.
Policy Dividend
A refund of part of the premium on a participating life insurance policy reflecting the difference between the premium charged and actual experience.
Policy Fee
Fee added to the periodic premium payments to cover undefined policy costs.
Policy Limit
The maximum amount a policy will pay, either overall or under a particular coverage.
Policy Loan
A non-recourse loan from the insurer to the policy owner secured by the policy's cash value.
Policy Owner
The individual who owns an insurance policy and who has all contractual rights. The policyowner is not necessarily the same person as the insured or the payor.
Policy Term
That period for which an insurance policy provides coverage.
Policy Holder
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.
Preexisting Condition
A physical and/or mental condition of an insured which existed prior to issuance and for which treatment was received.
Preferred Plus
The best premium rate classes for unimpaired, non-smoking applicants that are in better than average health.
Premium
The amount paid to an insurer or reinsurer in consideration of his acceptance of a risk.
Premium Financing
A policy holder contracts with a lender to pay the insurance premium on his/her behalf. The policy holder agrees to repay the lender for the cost of the premium, plus interest and fees.
Premium Loan
A policy loan made for the purpose of paying premiums.
Present Value
Refers to a method that applies an assumed rate of interest to compute today's value for a future payment.
Premium Tax
A tax on the premium in a particular province.
Primary Beneficiary
The person who, upon the insured's death, has the first right to receive insurance proceeds.
Principal
One for whom an agent acts, especially as to contractual dealings with third persons.
Q
R
Rate Banding
Term Life insurance death benefit thresholds, whereby, the rate per thousand decreases as the amount of death benefit increases – similar to a quantity discount.
Rate Per Thousand
Price per unit (or $1,000) of death benefit. Term premiums are calculated by multiplying the rates per thousand of death benefit, then adding the Policy Fee.
Rated Policy
Sometimes called an "extra-risk" policy, an insurance policy issued at a higher-than-standard premium rate to cover the extra risk where, for example, an insured has impaired health or a hazardous occupation.
Renew
To continue the policy for another period of time.
Renewable Term Insurance
Term insurance which can be renewed at the end of the term, at the option of the policyholder and without evidence of insurability, for a limited number of successive terms. The rates increase at each renewal as the age of the insured increases.
Renewal
Continuance of coverage under a policy beyond its original term by the insurer's acceptance of the premium for a new policy term.
Replacement
The act of terminating a policy with one insurer for a new policy with another insurer.
Replacement Form
A form that must be completed if the applicant is replacing existing coverage. The replacement form notifies the existing insurer that the applicant is replacing their policy with a policy from another company.
Revocable Beneficiary
A beneficiary whose rights are subject to the rights of the policyowner who may revoke or change the beneficiary designation and exercise any ownership rights under the policy without the beneficiary's consent.
Rider
A special provision attached to a policy that expands or restricts the benefits otherwise payable or excludes certain conditions from coverage.
S
Saving Age
A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the insured at issue lower than it actually was in order to get a lower premium. Most policies can be backdated up to six months. Also referred to as Saving Age.
Single Premium Life Insurance
A life insurance plan that requires only one premium and is guaranteed to remain paid-up throughout the insured's lifetime.
Split Dollar Plan
An arrangement in which two parties, usually an employer and employee, jointly purchase the policy, pay premiums and share in the policy's benefits.
Spousal Discount
A discount for purchasing coverage together as husband and wife from the same insurance company.
Standard
An underwriting rate classification for non-smokers who have minor health impairments.
Standard Risk
An average risk, not subject to rate loadings or restrictions because of poor health.
Sub-Standard Risk
An individual, who, because of health history or physical limitations, does not measure up to the qualification of a standard risk.
Suicide Clause
A policy provision usually stating that if the insured dies by suicide within two years of the date of issue, the amount payable would be limited to the total premiums paid, less any policy debt. The full benefit would only be paid if the suicide occurs after the first two policy years.
Surrender
To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policy holder may exercise one of the non-forfeiture options at the time of surrender.
Surrender Charge
An amount retained by the issuer of a life insurance policy when a policy is canceled, typically assessed only during the first five to ten years of a policy.
T
Tax-Deferral
Postponing the payment of income taxes until some point in the future, often at retirement. Generally, the cash value growth inside life insurance is eligible for deferral, unless the amount of cash received through surrender exceeds the policy's tax basis.
Ten-Year Level Term
A Term Life insurance policy with a level death benefit where the premium remains the same for ten years.
Term Conversion
Many Term policies come with conversion rights guaranteeing that, for a specified period of time, the policy can be converted to a permanent plan for the equivalent amount of coverage, without having to provide additional evidence of insurability.
Termination
Termination of a policy upon the policy owner's failure to pay the premium within the grace period.
Term Life Insurance
A life insurance plan that provides death benefit protection only and for a specified period of time (term). The policy pays benefits only if the insured dies during the term.
U
Underwriter
An employee of a life insurance company who is trained to evaluate the insurability and determine the classification of persons applying for insurance protection.
Underwriting
The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.
V
W
Waiver of Premium
An optional policy provision that continues the coverage without further premium payments if the insured becomes totally disabled.
Whole Life Insurance
Permanent insurance which provides, at minimum, a level death benefit upon the insured's death.
Will
The legal statement of a person's wishes concerning the disposal of his or her property after death.
