Understanding Key Terms

Understanding financial and insurance terminology is crucial for making informed decisions. Our comprehensive glossary provides clear definitions for essential terms, helping you navigate the complexities of financial planning and insurance policies. 

Glossary 

Glossary Layout

Glossary Terms

  1. Agent: A state-licensed representative of an insurance company who markets and negotiates insurance contracts, offering services to policyholders. Agents may represent multiple companies (independent) or just one (captive).

  2. Annuity: A financial product that provides regular payments over a period, often for the remainder of one’s life.

  3. Annuity Certain: A financial agreement that ensures payments for a set number of years, regardless of whether the recipient is alive or deceased.

  4. Application: Information provided by a potential policyholder to assess eligibility for life insurance, used to determine risk and premium rates.

  5. Beneficiary: The designated individual or entity that receives the insurance proceeds upon the insured’s death.

  6. Bonus Rate Annuity: An annuity offering an additional interest rate for the initial year to attract new policyholders, above the standard rate applicable from the second year onward.

  7. Cash Surrender Value: The cash amount available to the policyholder if they cancel the policy before it matures or the insured event occurs, minus any fees and loans.

  8. Direct Response: Insurance sold directly by the company to the consumer via mail or in-person, bypassing intermediaries.

  9. Disclosure Statement: A mandated form comparing existing and new policies, required when considering policy replacement, ensuring transparency.

  10. Dividend: A portion of the premium returned to policyholders on participating policies, reflecting better-than-expected company performance.

  11. Evidence of Insurability: Documentation or proof regarding health, financial status, or occupation, used to assess insurance risk.

  12. Expense: The share of an insurance company’s operational costs attributed to a policy, influencing premium and dividends.

  13. Face Amount: The stated value on a policy’s front page, representing the death benefit or maturity value, excluding extra benefits.

  14. Free Look Provision: A time frame (typically 10-30 days) during which a new policy can be reviewed and returned for a full refund if unsatisfactory.

  15. Insurable Interest: The legitimate interest one has in another’s continued life, necessary for purchasing life insurance on that person.

  16. Lapse Rate: The frequency at which policies are terminated due to non-payment of premiums, impacting overall policy costs.

  17. Life Expectancy: The statistical age a person is expected to live to, based on mortality tables, crucial for calculating insurance and annuity costs.

  18. Misstatement of Age: Incorrectly stating one’s age on an insurance application, leading to adjustments in coverage and premiums upon discovery.

  19. Mortality: The incidence rate of death within a population, used to calculate insurance premiums.

  20. Non-Forfeiture: Options available when premium payments stop on a cash value policy, such as taking the cash value or converting to extended term or reduced paid-up insurance.

  21. Non-Participating: A policy type that does not entitle the holder to a share of the company’s surplus.

  22. Participating Policy: A policy allowing the holder to receive a portion of the insurer’s surplus, reducing the effective premium paid.

  23. Policy: The legal document detailing the terms and conditions of an insurance contract between the insurer and policyholder.

  24. Policy Proceeds: The amount paid out on a life insurance policy upon death or at maturity, after any applicable deductions.

  25. Policyowner: The individual or entity that holds and controls the insurance policy.

  26. Premium: The payment required to keep an insurance policy active, which can be made in various installments.

  27. Rating: An additional charge to the standard premium for higher-risk individuals due to health or occupation.

  28. Reduced Paid-up Insurance: A non-forfeiture option converting a policy to a lower coverage amount with no further premiums required.

  29. Reinstatement: Restoring a lapsed policy by paying overdue premiums and proving insurability.

  30. Rider: An amendment to an insurance policy that changes its terms or coverage.

  31. Risk Classification: The process of categorizing applicants based on risk factors to determine appropriate premium rates.

  32. Settlement Options: Different methods for paying out policy benefits other than lump sum, including interest, fixed amount, fixed period, or life income options.

  33. Standard Risk: A classification for individuals who meet the normal underwriting standards and are charged standard premiums.

  34. Substandard Risk: A classification for individuals who pose a higher risk, resulting in higher premiums.

  35. Supplementary Contract: An agreement where the insurer retains part of the policy’s cash sum, paying out according to selected settlement options.

  36. Underwriter: The professional who evaluates insurance applications to determine acceptability and premium rates.

  37. Underwriting: The process of evaluating and deciding on insurance applications, determining premiums and coverage terms.
  1. Agent: A state-licensed representative of an insurance company who markets and negotiates insurance contracts, offering services to policyholders. Agents may represent multiple companies (independent) or just one (captive).

  2. Annuity: A financial product that provides regular payments over a period, often for the remainder of one’s life.

  3. Annuity Certain: A financial agreement that ensures payments for a set number of years, regardless of whether the recipient is alive or deceased.                 

  4. Application: Information provided by a potential policyholder to assess eligibility for life insurance, used to determine risk and premium rates.
  1. Beneficiary: The designated individual or entity that receives the insurance proceeds upon the insured’s death. 

  2. Bonus Rate Annuity: An annuity offering an additional interest rate for the initial year to attract new policyholders, above the standard rate applicable from the second year onward.
  1. Cash Surrender Value: The cash amount available to the policyholder if they cancel the policy before it matures or the insured event occurs, minus any fees and loans.
  1. Direct Response: Insurance sold directly by the company to the consumer via mail or in-person, bypassing intermediaries.

  2. Disclosure Statement: A mandated form comparing existing and new policies, required when considering policy replacement, ensuring transparency.

  3. Dividend: A portion of the premium returned to policyholders on participating policies, reflecting better-than-expected company performance.
  1. Evidence of Insurability: Documentation or proof regarding health, financial status, or occupation, used to assess insurance risk.

  2. Expense: The share of an insurance company’s operational costs attributed to a policy, influencing premium and dividends.
  1. Face Amount: The stated value on a policy’s front page, representing the death benefit or maturity value, excluding extra benefits.

  2. Free Look Provision: A time frame (typically 10-30 days) during which a new policy can be reviewed and returned for a full refund if unsatisfactory.
  1. Insurable Interest: The legitimate interest one has in another’s continued life, necessary for purchasing life insurance on that person.

  2.  
  1. Lapse Rate: The frequency at which policies are terminated due to non-payment of premiums, impacting overall policy costs.

  2. Life Expectancy: The statistical age a person is expected to live to, based on mortality tables, crucial for calculating insurance and annuity costs.
  3.  
  1. Misstatement of Age: Incorrectly stating one’s age on an insurance application, leading to adjustments in coverage and premiums upon discovery.

  2. Mortality: The incidence rate of death within a population, used to calculate insurance premiums.
  3.  
  1. Non-Forfeiture: Options available when premium payments stop on a cash value policy, such as taking the cash value or converting to extended term or reduced paid-up insurance.

  2. Non-Participating: A policy type that does not entitle the holder to a share of the company’s surplus.
  3.  
  1. Participating Policy: A policy allowing the holder to receive a portion of the insurer’s surplus, reducing the effective premium paid.

  2. Policy: The legal document detailing the terms and conditions of an insurance contract between the insurer and policyholder.

  3. Policy Proceeds: The amount paid out on a life insurance policy upon death or at maturity, after any applicable deductions.

  4. Policyowner: The individual or entity that holds and controls the insurance policy.

  5. Premium: The payment required to keep an insurance policy active, which can be made in various installments.
  1. Rating: An additional charge to the standard premium for higher-risk individuals due to health or occupation.

  2. Reduced Paid-up Insurance: A non-forfeiture option converting a policy to a lower coverage amount with no further premiums required.

  3. Reinstatement: Restoring a lapsed policy by paying overdue premiums and proving insurability.

  4. Rider: An amendment to an insurance policy that changes its terms or coverage.

  5. Risk Classification: The process of categorizing applicants based on risk factors to determine appropriate premium rates.
  1. Settlement Options: Different methods for paying out policy benefits other than lump sum, including interest, fixed amount, fixed period, or life income options.

  2. Standard Risk: A classification for individuals who meet the normal underwriting standards and are charged standard premiums.

  3. Substandard Risk: A classification for individuals who pose a higher risk, resulting in higher premiums.

  4. Supplementary Contract: An agreement where the insurer retains part of the policy’s cash sum, paying out according to selected settlement options.
  1. Underwriter: The professional who evaluates insurance applications to determine acceptability and premium rates.

  2. Underwriting: The process of evaluating and deciding on insurance applications, determining premiums and coverage terms.

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