Life Insurance Definitions

Accelerated Benefit Provision
Enables a policy owner to receive early death benefits if he or she is diagnosed with a terminal illness or permanently confined to a nursing home.

Accidental Death Benefit
A policy rider that provides additional benefits for those who die of accidental causes.

Actuary
A professional trained in the mathematics of insurance and risk management. Known as a mathematician in most countries outside the United States.

Adjuster
A person who investigates and settles insurance claims.

Administrative Costs
Costs related to utilization review, insurance marketing, medical underwriting, agents' commissions, premium collection, claims processing, insurer profit, quality assurance programs and risk management.

Admitted Company
An insurance company authorized to do business in a given state.

Age Limits
The ages below or above which the insurance company will not issue a given policy or renew a policy in force.

Agent
A person who sells insurance products of the insurance company; the person responsible for your insurance coverage needs.

Alien Insurance Company
An insurance company incorporated under the laws of a foreign country.

Assigned Risk
A risk assigned to insurers by law, which they may not otherwise accept.

Automatic Premium Loan
Any life insurance premium not paid by the end of the grace period (usually 31 days) is automatically paid by a policy loan if there is sufficient cash value.

Cancellation
The termination of insurance coverage during the policy period.

Cash Value
The amount of money, before adjustment for factors such as policy loans or late premiums, that the policy owner will receive if the policy owner allows the policy to lapse or cancels the coverage and surrenders the policy to the insurance company. Cash values are a feature of most types of permanent life insurance, such as whole life and universal life.

Certificate
A document used to verify coverage for a person covered under a group insurance policy.

Claim
A formal request for payment of a loss under an insurance contract.

Claimant
The first or third party. That is any person who asserts right of recovery.

Clause
A section or paragraph in an insurance policy that explains, defines or clarifies the conditions of coverage.

Commission
Paid to the insurance agent as compensation.

Composite Rate
A uniform premium applicable to all those eligible in a subscriber group, regardless of the number of claimed dependents. This is common among plans purchased by large employer groups.

Decline
An insurance company refuses to accept the request for insurance coverage.

Disability Benefits
A feature added to some life insurance policies providing for waiver of premium, if the policyholder becomes totally and permanently disabled.

Effective Date (Inception Date)
The date on which an insurance policy coverage starts.

Endorsement (Rider)
Amendment to the policy used to add or delete coverage.

Evidence of Insurability
Medical information about someone applying for insurance; this is used to determine which policies can be issued, and what premiums can be charged. It is kept confidential.

Exclusion
Certain causes and conditions, listed in the policy, which are not covered.

Experience
The record of claims made or paid within a specified period.

Experience Rating
Determination of the premium rate for an individual risk, made partially or wholly on the basis of that risk's own past claim experience.

Expiration Date
The date on which the policy ends.

Face Amount
The amount that the beneficiary receives upon the death of the insured.

Flat Cancellation
the cancellation of a policy as of it's effective date, without any premium charge.

Financial Ratings
Reflects the financial strength of insurance companies, and their ability to meet their obligations to their policyholders. Major rating organizations include Standard & Poor's, Moody's, and AM Best.

Free Look
The right of the owner of the policy to examine the policy, and return it for a full refund if necessary; this usually lasts for at least ten days.

Grace Period
A stated period over which an overdue premium may be paid without penalty.

Group Life Insurance
Life Insurance provided for members of a group. It is most often issued to a group of employees but may be issued to any group provided it is not formed for the purpose of buying insurance. The cost is lower than for individual policies because administrative expenses per life are decreased, there are certain tax advantages, and measures taken against adverse selection are effective.

Guaranteed Insurability
An option that allows a policyholder to purchase new life insurance at certain points in the future, without providing new evidence of insurability.

Illustration
A document showing yearly numbers to indicate how a policy will work; it is used in insurance sales presentations.

Incontestable Clause
A clause in a policy providing that after a policy has been in effect for a given length of time (two or three years), the insurer shall not be able to contest the statements contained in the application. A health insurance provision also states that after that time no claim shall be denied or reduced on the grounds that a condition not excluded by name at the time of issue existed prior to the effective date. In life policies, if an insured lied as to the condition of his health at the time the policy was taken out, that lie could not be used to contest payment under the policy if death occurred after the time limit stated in the incontestable clause.

Insured
The person who is covered by a policy (also known as the policy owner and policyholder).

Lapse
Ending insurance coverage without cash value when the policyholder fails to pay the premium.

Lifetime Benefit Maximum
The total amount an insurance company will pay for health care services over your lifetime. If the cost of the benefits you receive since enrolling in a plan exceeds this amount, your coverage ends and no additional services will be covered.

Loan Value
The amount that the policyholder can borrow from the insurance company (the policy serves as collateral).

Mathematician
A professional trained in the mathematics of insurance and risk management. Known as an actuary in the United States.

Misquote
An incorrect estimate of the insurance premium.

Misstatement of Age
Life insurance wording that specifies the action the insurer will take if, at the insured's death, the insurer discovers that the insured's age was misstated in the application and the misstatement has resulted in an incorrect premium for the amount of insurance purchased.

Mode of Premium Payment
Frequency of payment; premiums are usually paid on annual, semi-annual, quarterly, or monthly bases.

Mortality Table
A statistical table indicating the probability of death for each age.

Nonforfeiture Options
A policy provision that enables the policyholder to choose the monetary value of the policy, should it surrender or lapse as a result of failing to pay the premium.

Ordinary Life Insurance (Whole Life Insurance)
Life insurance that remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy. Whole life insurance also builds a savings called the cash value.

Ownership
All rights and privileges under a policy controlled by it's owner. Ownership may be assigned to someone else at the written request of the existing owner.

Paid-Up Insurance
A policy for which all premiums have been paid, with no further payments due.

Participating Insurance
Insurance where the policyholder may share the surplus earnings of the insurance company; this is done through dividends (i.e. the difference between premiums and actual costs of coverage).

Policy
A written insurance contract; can include forms, riders, endorsements, and attachments.

Policyholder
Literally, the person who has possession of the policy; can refer to the policy owner and those covered under the policy. Thus the term is non-functional as commonly used.

Policy Lapse (Lapse in Coverage)
A period during which a policy has been canceled or terminated by the insurance company for a variety of causes.

Policy Limit
The maximum amount a policy will pay, either overall or under a particular coverage.

Policy Period
The time in which a policy is in effect.

Policy Year
A one-year period from when the policy was issued.

Preferred Risk
A risk considered better than that on which a premium was calculated.

Premium
The amount of money an insurance company charges for insurance coverage.

Premium Financing
When a policyholder contracts with a lender to pay the insurance premium on his/her behalf. The policyholder agrees to repay the lender for the cost of the premium, plus interest and fees.

Quote
An estimate of the cost of insurance, based on information supplied to the insurance company by the applican't.

Rated Policy
An additional premium, added to a policy, to cover the risk of an especially hazardous occupation or hobby.

Rebate
A reduction of a premium.

Reinsurance
A form of insurance that insurance companies buy for their own protection.

Reinstatement
The restoring of a cancelled policy to full force and effect. The reinstatement may be effective after the cancellation date, creating a lapse of coverage. Some companies require evidence of insurability and payment of past due premiums plus interest.

Renewal
The process by which someone can keep an existing policy in effect.

Rider (Endorsement)
Amendment to the policy used to add or delete coverage.

Risk
A term used to designate an insured or a peril insured against.

Settlement Option
The method by which the insured or beneficiary would like to obtain payouts.

Short-Rate Cancellation
When the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish it's own short-rate schedule.

Standard Risk
The risk level of an applican't who meets given physical and occupational requirements. Below average risks are termed 'preferred risks,' while those of above average risks may be denied coverage.

Suicide Clause
A provision that reduces payouts in the event of suicide within the first two years of the policy.

Surrender
To voluntarily cancel a policy, in exchange for it's cash value.

Surrender Charges
Charges an insurance company may deduct if you cash in--or surrender--your life insurance policy or annuity. Companies also deduct these charges if you borrow money on your policy or your policy lapses for nonpayment.

Term Insurance
Life insurance under which the benefit is payable only if the insured dies during a specified period. If an insured dies during that period, the beneficiary receives the death payments. If the insured survives, the policy ends and the beneficiary receives nothing.

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.

Unearned Premium
The part of a premium left on a given policy term.

Universal Life Insurance
A combination flexible premium, adjustable life insurance policy. The premium payer may select the amount of premium he or she can pay and the policy benefits are those which the premium will purchase. Or, the premium payer may change the amount of insurance and pay premium accordingly.

Variable Life Insurance
A kind of insurance where the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy.

Whole Dollar Premium
Premiums rounded up to the nearest dollar (any amount of 51 cents or more); lesser amounts are typically eliminated entirely.

Waiver of Premium
A rider to waive premium payments required by an insured during his or her total disability.

Whole Life Insurance (Ordinary Life Insurance)
Life insurance that remains in force during the insured's entire lifetime, provided premiums are paid as specified in the policy. Whole life insurance also builds a savings called the cash value.

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