Accident - An unforeseen, unintended event; something unexpected; fortuitous.

Accidental Death Benefits - If a policy includes an accidental death benefit, the cause of death will be examined to determine whether the Insured´s death meets the policy´s definition of accidental.

Actuary - An insurance professional skilled in the analysis, evaluation, and management of statistical information. Evaluates insurance firms' reserves, determines rates and rating methods, and determines other business and financial risks.

Actual Cash Value (ACV) - The value of your property, based on the current cost to replace it minus depreciation.

Adjuster - A person who investigates and settles insurance claims.

Administrative Expense Charge - An amount deducted, usually monthly, from the policy.

Admitted Company - An insurance company licensed and authorized to do business in a particular state.

Adverse Selection - The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all.

Agent - Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission, and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.

Application - A form on which the prospective insured states facts requested by the insurance company and on the basis of which (together with any information from medical examiners, attending physicians, hospitals, investigations, and the agent) the insurance company decides whether or not to accept the risk, modify the coverage offered, or decline the risk. An application without premium money is a request for an offer. With premium money, it is an offer itself, unless the insurance company declines to issue as applied for.

Assignment - The transfer of all or part of a policy owner´s legal title and rights to a policy to another person. It is possible to change this type of transfer at a later date.

B

Binder - A temporary insurance contract that provides proof of coverage until you receive a permanent policy.

Broker - An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.

C

Captive Agent - A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent's captive company.

Cash Surrender Option - Nonforfeiture option, which specifies that the policy owner can cancel the coverage and receive the entire net cash value in a lump sum.

Cash Value - The amount of money, which the policy owner will receive as a refund if the policy owner cancels the coverage and returns the policy to the company. Also known as cash surrender value.

Churning - Can occur when an agent persuades a consumer to borrow against an existing life insurance policy to pay the premium on a new one.

Claimant - A person who makes an insurance claim.

Conditional Receipt - A premium receipt given to an applicant which makes the insurance effective only if or when a specified condition is met.

Contestable Period - A period of up to 2 years that an insurance company may deny payment of a claim because of suicide or a material misrepresentation on your application.

Contingent Beneficiary - Another party or parties who will receive the proceeds if the primary beneficiary should predecease the person whose life is insured.

Contract - In most cases, the term "contract" refers to an insurance policy. A policy is considered to be a contract between the insurance company and the policyholder.

Conversion Privilege - The right to change (convert) insurance coverage from one type of policy to another. For example, the right to change from an individual term insurance policy to an individual whole life insurance policy.

D

Declarations Page - The page in your policy that shows the name and address of the insurer, the period of time a policy is in force, a description of the vehicle, the amount of the premium, and the amount of coverage.

Deductible - The amount the insured must pay in a loss before any payment is due from the company.

Depreciation - The act of lowering an item´s value due to use or wear and tear.

Dividend - The amount of money an insurance company may decide to distribute to policyholders.

E

Effective Date - The date on which an insurance policy becomes effective.

Elimination Period - A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.

Endorsement - A written agreement attached to a policy expanding or limiting the benefits otherwise payable under the policy. Same as a "rider".

Escrow - Money placed in the hands of a third party until specified conditions are met.

Evidence of Insurability - To qualify you for a particular policy at a particular price, companies have the right to ask you for information about your health and lifestyle. An insurance company will use this information - your evidence of insurability - in deciding if your application for insurance is acceptable and at what premium rate.

Exclusion - Provision in an insurance policy that indicates what is denied coverage.F Face - The first page of a policy.

Face Value - The initial amount of death benefit provided by the policy as shown on the face page of the contract. The actual death benefit may be higher or lower depending on the options selected, outstanding policy loans or premium owed. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

G

Guaranteed Insurability Rider - A rider that may be attached to a health or life insurance policy, which permits the insured, to purchase additional insurance at one or more specified "option dates," without providing new evidence of insurability at that time.

Guaranteed Renewable - A contract that the insured has the right to continue in force by the timely payment of premiums for a substantial period of time, as set forth in the contract, during which period the insurance company has no right unilaterally to make any change in a provision of the contract while the contract is in force, other than a change in the premium rate for classes of insured.

I

Independent Adjuster - A person who charges a fee to the insurance company to adjust the company's claim.

Indexed Life Insurance - A whole life plan of insurance that provides for the face amount of the policy and, correspondingly, the premium rate, to automatically increase every year based on an increase in the Consumer Price Index (CPI) or another index as defined in the policy.

Insurable Interest - A financial interest in the property insured, prerequisite to a valid contract of insurance. In life insurance, a person´s or party´s interest - financial or emotional - in the continuing life of the insured.

Insured - The person or firm covered by an insurance policy.

Insurer - The insurance company.

Interpleader - This is a procedure when conflicting claims are made on a life insurance policy by two or more people. Using this procedure the insurance company pays the policy proceeds to a court, stating the company cannot determine the correct party to whom the proceeds should be paid.

Irrevocable Beneficiary - A named beneficiary whose rights to life insurance policy proceeds are vested and whose rights cannot be canceled by the policy owner unless the beneficiary consents.

L

Level Premium Insurance - That form of insurance for which the premium remains the same throughout the life of the contract. Most whole life insurance is paid for in this way. The amount of a level premium is higher than needed for the protection afforded in the early years of the contract but less than needed for protection in the later years. It is a method of leveling off the cost of insurance so as not to have it increase each year until it becomes unaffordable.

Level Premium Term Insurance - Term insurance for which the amount of the premium payment remains constant during the policy period.

Level Term Rider - A level amount of temporary insurance added to a permanent insurance policy.

Life Expectancy - The average number of years remaining for an individual to live shown at each age based on long term studies by insurance companies. These statistics as shown on charts called mortality tables.

Life Insurance - A contract between an owner (often the insured person) and a life insurance company that guarantees the payment of a stated amount of money on the death of the insured.

Lifetime Policy - A policy guaranteed renewable or noncancellable to age 65 or later.

Limited-Pay Life - A permanent life insurance policy on which premiums are paid for a specified number of years or to a specified age of the insured. Protection continues for the entire life of the insured.

Living Benefits Rider - This rider is attached to a life insurance policy and provides LTC benefits or benefits for the terminally ill using available life insurance benefits.

Loss - The amount an insurance company pays on a claim.

M

Mortality Charge - The cost of the insurance protection element of a universal life policy. This cost is based on the net amount at risk under the policy, the Insured's risk classification at the time of policy purchase, and the Insured's current age.

Mortality Expenses - The cost of the insurance protection based upon actuarial tables which are based upon the incidence of death, by age, among given groups of people . This cost is based on the amount at risk under the policy, the insured's risk classification at the time of policy purchase, and the insured's current age.

Mutual life insurance company - A life insurance company owned by the policyholders. Policyholders of a mutual life insurance company may participate in the “divisible surplus” of the life insurance company as owners. They can receive dividends, most commonly on whole life policies, which can enhance the cash value, increase the insurance amount or lower premiums.

N

Non-renewal - A decision by an insurance company not to renew a policy.

O

P

Paid-Up Additions - Additional amounts of insurance purchased using dividends; these insurance amounts require no further premium payments.

Peril - A cause of property losses. Usually used in the context of "a peril insured against".

Policy - The contract issued by the insurance company to the insured.

Policy Loan - An advance made by a life insurance company to a policy owner. The advance is secured by the cash value of the policy.

Policy Owner - The person or party who owns an individual insurance policy. This person may be the insured, the beneficiary or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.

Policy Period - The period a policy is in force, from the beginning or effective date to the expiration date.

Preferred Risk - Any risk considered to be better than the standard risk on which the premium rate was calculated.

Premium - The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.

Premium Expense Charges - An amount deducted from each premium payment, which reduces the amount credited to the policy.

R

Refund - Amount of money being returned to the policyholder.

Reinstatement - The process by which a life insurance company puts back in force a policy which had lapsed because of nonpayment of renewal premiums.

Renewable Term Insurance - Term insurance which can be renewed at the end of the term, at the option of the policy owner and without evidence of insurability, for a limited number of successive terms. The rates generally increase at each renewal as the age of the insured increases.

Renewal Policy - A policy issued as a renewal of a policy expiring in the same company or agency; not new business.

Return of premium life insurance - A rider on a life insurance policy providing that, in the event of the death of the insured within a specified period of time, the policy will pay, in addition to the face amount, an amount equal to the sum of all premiums paid to date.

Rider - A written agreement attached to the policy expanding or limiting the benefits otherwise payable under the policy. Same as an endorsement.

S

Single-Premium Whole Life Policy - A type of limited-payment policy that requires only one premium payment.

Standard Risk - A risk that is on par with those on which the rate has been based in the areas of health, physical condition, and morals. An average risk, not subject to rate loadings or restrictions because of poor health.

Stock life insurance company - A stock life insurance company is owned by stockholders. Contrast this with mutual life insurance company.

Suicide Clause - Life insurance policy wording which specifies that the proceeds of the policy will not be paid if the insured takes his or her own life within a specified period of time after the policy's date of issue.

Surrender Charges - Charges that are deducted if your life insurance policy or annuity is cashed in (surrendered). These charges also are deducted if you borrow money on your policy or if your policy lapses for non-payment.

T

U

Underwriting - The process an insurance company uses to decide whether to accept or reject an application for a policy.

Unearned Premium - The insured's remaining premium equity in his policy; that part of the policy premium that has not been used up.

Universal Life Insurance - The key characteristic of universal life insurance is flexibility. Within limits, you can choose the amount of insurance and the premium you wish to pay. The policy will stay in force as long as the policy value is sufficient to pay the costs and expenses of the policy. The policy value is interest-sensitive, which means that it varies in accordance with the general financial climate. Lowering the death benefit and raising the premium will increase the growth rate of your policy. The opposite also is true. Raising the death benefit and lowering the premium will slow the growth of your policy. If insufficient premiums are paid, the policy could lapse without value before the maturity date is reached. (The maturity date is the time your policy ceases and cash surrender value would be payable if the policyholder is still living.) Therefore, it is your responsibility to pay consistently a premium that is high enough to ensure that your policy's value will be adequate to pay the monthly cost of the policy. The company is required to send you an annual report and also to notify you if you are in danger of losing your policy due to insufficient value.

V

Viatical Settlement Agreements - Viatical settlements involve the sale of an existing life insurance policy by a viator (person with a life threatening or terminal illness) to a viatical settlement company in return for a cash payment that is a percentage of the policy's death benefit.

W

Whole Life Insurance - Whole life insurance policies are one type of cash value insurance. Whole life policies offer protection through a lifetime - that is, for a person´s "whole life." From the day you buy the policy, you pay a scheduled premium,. The scheduled premium may be level or may increase after a fixed time period, but it will not change from the amount(s) shown in the policy schedule. It is important that you look at the policy schedule to be sure you understand what your premium payments will be and that you can afford them over time. This premium is based on your age at the time of purchase. Initially, it will be higher than the premium paid for a term policy, but you are likely to end up paying less in premiums when you are older, if you keep the policy for a long time. Part of each premium payment will go to cash value growth, part for the death benefit and part for expenses (such as commissions and administrative costs). There is no need to renew whole life policies. As long as you pay your premium when due, your coverage will continue in force throughout your life.