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wichbook.gif (1903 bytes)    Glossary of Insurance Terms  guestbookwrite.gif (20400 bytes)

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Accelerated Death Benefits Rider
A life insurance rider that allows for the early payment of some portion of the policy's face amount should the insured suffer from a terminal illness or injury. A terminal illness is one that is expected to be fatal within one year. (aka Terminal Illness Benefit Rider)

Accidental Death and Dismemberment
Insurance providing payment if the insured's death results from an accident or if the insured accidentally severs a limb above the wrist or ankle joints or totally and irreversibly loses his or her eyesight.

Accidental Death Benefit Rider
A life insurance policy rider providing for payment of an additional benefit related to the face amount of the base policy when death occurs by accidental means.

A.M. Best Company
The A.M. Best Company is the oldest, most experienced rating agency in the world, and has been reporting on the financial condition of insurance companies since 1899. Best's Ratings represent the current and independent opinion of a company's financial strength and ability to meet obligations to policyholders. Best's Ratings are not a warranty of an insurer's current or future ability to meet obligations to policyholders, nor are they a recommendation of a specific policy form, contract, rate,
or claim practice.

Annually Renewable Term
A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability. Also called Yearly Renewable Term (YRT).

Annuity
A contract with an insurance company, whereby the policy owner deposits a single sum, or makes periodic premium payments in exchange for a series of periodic payments to the annuitant sometime in the future, usually at retirement. Most annuities can also be surrendered for their net cash value.

Annuitize
The option chosen by the annuitant to convert the accumulated value of the annuity into a guaranteed stream of income. Under the "life-only" annuitization option, the annuitant is guaranteed an income stream that cannot be outlived.

Application
Form supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued. It gives information to the home office underwriting department so it may consider whether an insurance policy will be issued and at what premium rate.

Attending Physician's Statement (APS)
A report prepared by the proposed insured's physician, which  includes copies of the proposed insured's medical records and related medical history. Generally when applicants complete a life insurance application, they also complete an authorization form which allows their physician, hospital, etc. to release the medical information to the insurance company. This information greatly helps the underwriter in deciding on whether or not to accept the application, and determine the premium amount, if the application is acceptable to the company.

Back Dating
The practice of making a policy effective at an earlier date than the present. Generally, this is used to have the policy issued at the policyholder's current age, thus locking-in the lower premium.

Beneficiary
Person to whom the proceeds of a life policy are payable when the insured dies. The various types of beneficiaries are: primary beneficiaries (those first entitled to proceeds); secondary beneficiaries (those entitled to proceeds if no primary beneficiary is living when the insured dies); and tertiary beneficiaries (those entitled to proceeds if no primary or secondary beneficiaries are alive when the insured dies).

Best's Insurance Report
A guide, published by A.M. Best, Inc., that rates insurers' financial integrity and managerial and operational strengths.

Business Continuation Plans
Arrangements between business owners that provide that the shares owned by any one of them who dies shall be sold to and purchased by the other co-owners or by the business.

Buy-Sell Agreements
Agreement that a deceased business owner's interest will be sold and purchased at a predetermined price or at a price according to a predetermined formula.

Cash Value aka (Cash Surrender Value)
The equity amount or "savings" accumulation in a whole life policy. i.e. The amount that is available in cash for loans or withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Children's Insurance Rider
Rider attached to insurance policy that provides coverage for all of the insured's children for an additional premium. Some Children's riders are convertible to regular Term or Permanent insurance, without further proof of insurability.

Concealment
Intention by the applicant for an insurance policy to withhold or secrete information. If an insured withholds information on a material fact, about which the insurance company has no knowledge, the company has grounds to void the contract.

Conditional Receipt
Given to policy owners when they pay a premium at time of application. Such receipts bind the insurance company if the risk is approved as applied for, subject to any other conditions stated on the receipt.

Contingent Beneficiary
Person or persons named to receive proceeds in case the original beneficiary is not alive. Also referred to as secondary or tertiary beneficiary.

Conversion Privilege
Allows the policy-owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).

Convertible Term  Insurance
Term insurance which can be exchanged (converted), at the option of the policy owner and without evidence of insurability (i.e. no medical exam or lab work), for a permanent insurance policy.

Cross-Purchase Plan
An agreement that provides that upon a business owner's death, surviving owners will purchase the deceased's interest, often with funds from life insurance.

Decreasing Term Insurance
Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually. This type of insurance is often referred to as mortgage life insurance, since it is designed to cover the decreasing loan balance.

Disability Income Rider
A type of health insurance coverage, it provides for the payment of regular, periodic income should the insured become disabled from illness or injury.

Double Indemnity
A provision in a life insurance policy, subject to specified conditions and exclusions, under the terms of which double the face amount of the policy is payable if the death of the insured is the result of an accident. In general, the conditions are that the insured's death occurs prior to a specified age and results from bodily injury effected solely through external, violent and accidental means independently and exclusively of all other cause, within 60 or 90 days after such injury.

Elimination Period
A form of deductible found in disability and long-term care insurance policies, in which no benefits are paid during the first few days of disability, or need for care. The longer the elimination period in a policy, the lower the premium.

Evidence of Insurability
Any statement or proof of a person's physical condition, occupation, etc., affecting acceptance of the applicant for insurance.

Exclusions
Provisions in an insurance contract/policy that indicates what is not covered under the policy.

Face Amount
The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other policy riders.  The actual amount payable may be decreased by loans or increased by additional benefits payable under specified conditions or stated in a rider. (Also referred to as Specified Amount or Death Benefit.)

Free Look Provision
Provision required in most states whereby the policy owner is given several days to examine his or her  new policy at no obligation. The free-look period can be as long as 30 days in some states.

Grace Period
Period of time after the due date of a premium during which the policy remains in force without penalty.

Guaranteed Insurability (Guaranteed Issue)
Arrangement, usually provided by rider, whereby additional insurance may be purchased at various times without evidence of insurability.

Guaranty Association
Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments.

Incontestable Clause
Provides that, for certain reasons such as misstatements on the application, the company may void a life policy after it has been in force during the insured's lifetime, usually one or two years after issue.

Increasing Term Insurance
Term life insurance in which the death benefit increases periodically over the policy's term. Usually purchased as a cost of living rider to a whole life policy.

Independent Agency System
A system for marketing, selling and distributing insurance in which independent brokers are not affiliated with any one insurer but represent any number of insurers.

Inspection Report
Report of an investigator providing facts required for a proper decision on applications for new insurance and reinstatements. Usually includes a check on applicant's background check and  lifestyle.

Insurability
Circumstance in which an insurance company can issue a life, health or disability insurance policy to an applicant after reviewing the application, lab results, medical records, etc. and determines whether to offer a policy to the applicant.

Insurable Interest
Requirement of life insurance contracts that the death of the  insured person causes a financial loss to the beneficiary, and must be sufficient to justify the amount of coverage requested. This requirement is clear in cases of married couples, especially when children present in the household.

Insurance
A tool that provides financial compensation to the insured in the event of a covered loss under the insurance policy/contract. In general, the purpose of an insurance policy is to compensate the insured in part or in full for a covered loss, and is not meant to generate a "profit" for the insured.

Insured or Insured Life
The person on whose life the policy is issued, or the one to whom benefits are paid in case of a loss covered  under the policy.

Insurer
Party that provides insurance coverage, typically through a contract of insurance (i.e. insurance policy). Typically the insurance company is the insurer.

Key Employee Insurance
Protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.

Lapse
Termination of a policy upon the policy owner's failure to pay the premium within the grace period.

Level Term Insurance
Term coverage on which the face value and premiums remain unchanged from the date the policy comes into force to the date the policy expires.

Level Premium (Life Insurance)
Life insurance for which the premium remains the same from year to year. The premium is normally 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 payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Living Benefit Rider
A feature found in certain life insurance policies which pays a portion of its death benefit to a living insured who suffers from any of the catastrophic illnesses as defined in the policy or rider. These may include, but not limited to: Heart Attack, Stroke, Alzheimer's Disease, Renal (kidney) Failure, life-threatening cancer or Heart Bypass Surgery.

Loan (Policy Loan)
A loan made by a life insurance company to a policy owner, where the cash-value of the policy is used as collateral against the loan.

Medical Examination
Usually conducted by a licensed physician; the medical report prepared by the physician is made part of the application, and  is attached to the policy as part of the insurance contract. A "non-medical" is a short-form medical report filled out by an insurance agent or a paramedical examiner. Whether the examination will be "medical" or "non-medical depends on various company rules, such as amount of insurance applied for or already in force, applicant's age, sex, past physical history as well as data revealed by the inspection report, etc.

Medical Exam Questionnaire
A document completed by a physician or another approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability).

Medical Information Bureau (M.I.B.)
Medical Information Bureau (M.I.B.) -MIB, Inc. is organized as a non-stock membership association of life insurance companies of the U.S. and Canada. The primary mission of MIB is to provide an alert to its member insurance companies against omission and fraud in the underwriting of individual life/health/disability insurance applications. This helps MIB member companies to protect their interests and leads to cost savings which can be passed on to insurance consumers in the form of lower premiums and increased policyholder dividends.

Misrepresentation
Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.

Mortality
The relative incidence of death within a given group, based on life expectancy.

Mortgage (Life) Insurance
A life insurance policy earmarked for paying-off the remaining mortgage balance outstanding after the insured person's death. Generally, "Decreasing Term" insurance is used for this purpose.

Non-Medical Insurance
Issued on a regular basis without requiring a regular medical examination. In passing on the risk, the company relies on the applicant's answers to questions regarding his or her physical condition and on personal references or inspection reports. Generally, rates are higher for these types of policies.

Offer and Acceptance
The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.

Other Insured Rider
A term rider covering a family member other than the insured that is attached to the base policy covering the insured.

Paid-up Insurance
Insurance that remains in force without further premium payments. Some policies can be paid-up with a single premium, while other may take several years to become fully paid-up.

Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer (see also Dividend.)

Permanent (Life Insurance)
Any form of life insurance except term; generally insurance that builds up a cash value, such as universal life whole life.

Policy Dividend
A return of part of the premium on participating insurance that is based on the insurer's investment, mortality, and expense experience. Dividends are not guaranteed.

Policy Owner
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.

Preferred Risk
An applicant for life, health or disability insurance, who is considered by the insurance company to have a lower probability of filing a claim for benefits. Generally, this is determined by the proposed insured's height & weight, medical history, lifestyle, occupation, lab results etc. Applicants who are accepted as "preferred risks" are offered lower rates than other applicants, also known as "preferred rates".

Premium
The periodic payment required to buy a policy and to keep it in force.

Primary Beneficiary
In life insurance, the person designated as the first to receive policy benefits upon the insured's death .

Proceeds
Net amount of money payable by the company at the insured's death or at policy maturity. In a life insurance policy, this represents the death benefit less policy loans and premiums due.

Rate-Up in Age
System of rating substandard risks that involves assuming the insured to be older than he or she really is and charging a correspondingly higher premium.

Re-entry Option
An option in a renewable term life policy under which the policy owner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability, at a premium rate specified in the policy.

Reinstatement
Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

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.

Replacement
Act of replacing an existing insurance policy with another. Most states require the new company to notify the existing company that their policy may be replaced.

Representation
Statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief but that are not warranted as exact in every detail.

Rider
An endorsement to a life insurance policy that provides additional benefits, or limits an insurance company's liability for payment of benefits under certain conditions. Some common riders include: 1) Waiver of premium for Disability 2) Accidental Death Benefit 3) Guaranteed Insurability Option and 4) Children's Insurance Rider.

Risk Selection
The method a home office underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and set the premium rates accordingly.

Salary Continuation Plan
An arrangement whereby an income, usually related to an employee's salary, is continued upon his or her death; often paid to the employee's beneficiary.

Secondary Beneficiary
An alternate beneficiary designated to receive payment, usually in the event the original (i.e. primary) beneficiary predeceases the insured.

Section 1035 Exchanges
Certain life insurance policy or annuity exchanges that are considered, according to Internal Revenue Code section 1035, to be tax-free.

Standard Risk
Persons who, according to a company's underwriting criteria, is entitled to insurance protection without extra ratings or special restrictions. Rates for standard risks are higher than preferred risks, but lower than substandard risks.

Stock Redemption Plan
An agreement under which a closely held corporation purchases a deceased stockholder's interest.

Sub-Standard Risk
Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

Suicide Clause
Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years, after the issue date, the company's liability will be limited to a return of premiums paid.

Term Insurance
This type of policy provides protection for a limited number of years; expiring without value if the insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection. Life insurance that does not build up cash value and where the premium normally increases as the insured gets older.

Term of Life Insurance Policy
The number of years after which the insured would have to re-qualify in order to continue the coverage under the policy. Generally, this is the same as the number of years that premiums are guaranteed for.

Terminal Illness Benefit (aka Accelerated Death Benefit Rider)
A rider currently found in most life insurance policies which allows the policyholder to receive a portion of the death benefit in case of terminal illness of the insured. (i.e. life expectancy of one year or less.)

Tertiary Beneficiary
In life insurance, a beneficiary designated as third in line to receive the proceeds or benefits if the primary and secondary beneficiaries do not survive the insured.

Twisting
Practice used by some insurance agents to willfully misrepresent the facts to a policy owner in in order to induce him/her to lapse, forfeit or surrender a life insurance policy with an existing company for the purpose of selling them a new policy with another company .

Underwriter
A insurance company representative or employee who is responsible for deciding whether to accept or reject an insurance applicant, based on underwriting criteria and other considerations. Insurance agents are often referred to as "Field Underwriters", but they are not authorized by the insurance company to accept or reject applicants.

Unilateral Contract
A distinguishing characteristic of a life insurance contract in that it is only the insurance company that pledges anything. The policy owner does not even promise to pay premiums; therefore, it is really a one-sided contract favoring the policy owner.

Uninsurable Risk
An insurance applicant who is not acceptable for insurance based on the company's underwriting guidelines and other factors.

Universal Life Insurance
Also referred to as "Flexible Premium", this type of policy was introduced in the early 1980's as an alternative to the traditional term life insurance and whole-life policies. Unlike term and whole-life policies, premiums can be adjusted up or down during the term of the contract, so long as the accumulated cash value is sufficient to cover the monthly policy costs. Universal life continues to be one of the most popular types of life insurance today, due to its flexibility and affordability.

Waiver of Premium
Rider or provision included in most life insurance policies exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually six months.

Whole Life Insurance 
A basic type of permanent life insurance which can provide lifetime protection at a level premium. Premiums must generally be paid for as long as the policy is in force. This type of policy generally carries the highest premium of life insurance policies. 

Yearly Renewable Term (YRT)
A form of renewable term insurance that provides coverage for one year and allows the policy owner to renew his or her coverage each year, without evidence of insurability. (aka Annually Renewable Term)
 

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For More Information Contact:

Henry Best Insurance Services
25820 Tennyson Lane, Stevenson Ranch, CA 91381
Tel: (818) 613-5380
FAX: (661) 284-3520

email: info@yourinsurancestore.com

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Copyright 1998-2003 Henry Best Insurance Services
Last modified:  November 11, 2003