Glossary of Insurance
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).
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
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.
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.
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
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.
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.
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.
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.
Person or persons named to receive proceeds in case the original beneficiary is not
alive. Also referred to as secondary or tertiary beneficiary.
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
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.
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.
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.
Provisions in an insurance contract/policy that indicates what is not covered under
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.
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.
Established by each state to support insurers and protect consumers in the case of
insurer insolvency, guaranty associations are funded by insurers through assessments.
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.
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.
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.
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.
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.
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.
Termination of a policy upon the policy owner's failure to pay the premium within the
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.
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.
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.
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.
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.
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.
A life insurance policy that is eligible for the payment of dividends by the insurer (see
Permanent (Life Insurance)
Any form of life insurance except term; generally insurance that builds up a cash value,
such as universal life whole life.
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.
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.
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".
The periodic payment required to buy a policy and to keep it in force.
In life insurance, the person designated as the first to receive policy benefits upon
the insured's death .
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.)
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.
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 .
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
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.
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
Waiver of Premium
Whole Life Insurance
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
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
Annually Renewable Term)