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Frequently Used Life Insurance Terms
To help you understand life insurance, we have provided below a general
explanation of some frequently used terms. Note that the exact definitions
of these terms can vary from company to company, from state to state, and
from policy form to policy form, even between forms of the same company.
Always consult the actual policy for the meaning of the terms applicable
to your situation.
Absolute Assignment
Assignment by the policyowner of all control and rights to a third party.
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Accident
An event that is unforeseen and unintended.
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Accidental Death Benefit
When included, provides an extra benefit generally equal to a multiple of the
face amount in the event of accidental death.
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Accelerated Death Benefit
Allows policyholders who are terminally ill to collect part of their death
benefit while they are still alive.
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AD&D
Accidental Death and Dismemberment insurance.
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ADB
Accidental Death Benefit.
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Age Limits
The ages above or below which a company will not issue a given policy to
a proposed insured.
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Agent
An individual licensed by the state and appointed by a company to solicit and negotiate insurance contracts on its behalf.
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Amendment
A form attached to the policy bearing the language necessary to change
the terms of the policy to fit special conditions. Amendments must be agreed
to in writing by the policyholder and the company.
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Applicant
The individual named as submitting an application to the insurance
company for a policy.
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Application
A form on which the proposed insured states facts requested by the
company and on the basis of which (together with other information, such as
that received from medical examiners, attending physicians, hospitals,
investigators, and the agent) the company decides whether or not to accept
the risk, modify the coverage offered, or decline the application.
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Assignment Clause
Clause in the insurance policy that governs any transfer by the policyholder
of his rights in the policy.
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Attained Age
The age an insured has reached on a given date.
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Authorized Company
A company permitted to sell insurance within a state.
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Automatic Premium Loan Provision
Allows the company to use, automatically, whatever portion of the cash
value is needed to pay premiums as they fall due when the provision is included.
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Aviation Clause/Rider
Limits or excludes coverage when the insured is participating in specified
types of air travel. Coverage is usually confined to regularly scheduled flights
of commercial airlines.
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Beneficiary
A person who may become eligible to receive, or is receiving, benefits under
a life insurance plan as a result of the insured's death.
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Beneficiary, Contingent
A secondary beneficiary, designated to receive proceeds of a policy if the
primary beneficiary does not survive the insured. Must be named in the beneficiary
designation.
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Beneficiary, Irrevocable
A named beneficiary whose status as beneficiary cannot be changed without
his or her permission, except by his or her death.
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Beneficiary, Primary
The person first designated to receive the proceeds of a policy. Must be
named in the beneficiary designation.
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Cancellation
Termination of contract of insurance in force by voluntary act of the company
or insured, effected in accordance with provisions in the contract or by mutual
agreement.
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Carrier
An insurance company which "carries" the insurance. (The term "company" is
preferred because of the possible confusion of "carrier" with
transportation terminology.)
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Cash Surrender Value
That value in a policy which is the property of the policyowner, and which
may be expected by him should he surrender the policy for cash.
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Clause
A term used to identify a particular part of a policy or endorsement.
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Collateral Assignment
Assignment of a life or health insurance policy as security for a loan or
debt, the creditor to receive the proceeds or values only to the extent of its
interest.
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Conditions
The part of an insurance contract setting out the responsibilities of both the
insured and the company.
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Consideration
The exchange of value on which a contract is based. In life and health
insurance, the consideration from the applicant is the premium and the statements
in the application.
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Consideration Clause
A clause in a life policy specifying the premium due for the insurance
protection and the frequency of payment.
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Contingent Beneficiary
Person or persons named to receive benefits if the primary beneficiary is
not alive.
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Contract Of Insurance
A contract whereby a company agrees to indemnify an insured for losses,
provide other benefits, or render services to, or on behalf of, an insured.
(The contract of insurance is often called an "insurance policy," but
"policy" is merely the evidence of the agreement.)
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Convertible Term Insurance
A term policy which can be converted to a permanent type of coverage without
proof of insurability.
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Death Benefit
The policy proceeds to be paid upon the death of the insured.
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Death Claim
A formal request for payment by the company occasioned by the death of the
insured. Can be made through the agent, but may be made directly to the home office.
Requires Proof of Death (usually a certified copy of death certificate and a claim
form) and is made by beneficiary.
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Declaration Page (Schedule Page)
The portion of an insurance policy containing the demographic information
regarding the risk.
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Decreasing Term Insurance
Term insurance under which the amount of coverage starts out at a certain face
amount, and then gradually decreases until the expiration date of the policy.
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Decreasing Term Rider
A rider providing decreasing term coverage added to a permanent insurance policy.
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Dismemberment
Loss, or loss of use of specified members of the body, resulting from accidental
bodily injury.
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Double Indemnity
Payment of twice the basic benefit in event of loss resulting from accidents
or under specified circumstances.
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Effective Date
The date on which an insurance policy goes into effect, and from which
protection is provided.
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Endorsement
A form attached to the policy bearing the language necessary to change the
terms of the policy to fit special circumstances and generally attached at the
request of the policyholder or to comply with statutory regulation.
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Endowment Policy
A permanent life policy for which premiums are paid for a limited number of years.
If the insured is alive at the end of this premium-paying period, he receives the
face amount of the policy then or at a later date. If the insured dies before
maturity of the policy, the beneficiary receives the proceeds. These policies
are usually not offered today.
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Estate
Assets of an individual comprising total worth. Includes life insurance in
force.
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Estate Plan
The manner in which property will be disposed of at death.
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Exclusions
Stated exceptions to prior provisions in a policy. Common exclusions would be
death through flying in a private airplane, riot, or state of war.
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Executor
A person named in a will to settle an estate.
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Face Amount
The amount indicated on the face of the policy that will be paid at death or
when the policy matures.
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Fraud
An intentional misrepresentation made by a person with intent to gain advantage,
and relied upon by a second party to his or her detriment.
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Grace Period
A period of time (commonly 31 days) after premium-due date during which a
policy remains in force without penalty even though the premium due has not been
paid.
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Guaranteed Insurability Rider
A rider that provides that the insured can purchase more insurance at specified
ages or events without proof of insurability.
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Incontestable Clause
A clause in an insurance policy typically providing that (except for fraud)
after the policy has been in force for a given length of time the company shall
not be able to contest it. Other policies usually use a variation of the clause
entitled "Time Limit on Certain Defenses."
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Inspection
Independent checking on facts about an applicant or claimant, usually by a
commercial inspection agency.
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Insurability
That condition of the proposed insured as to age, occupation, physical
condition, medical history, moral fitness, financial condition and residence
which makes him an acceptable risk to an insurance company.
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Insurable Interest
The proposed policy owner cannot buy the insurance unless the death or
disability of the insured would result in a significant emotional or financial
loss to the proposed owner.
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Insurance
A contract or device for the transfer of the risks of individual entities to
a company, which agrees, for a consideration, to indemnify or pay a specified
amount for losses suffered by the insured.
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Insurance Age
An age upon which current premium rates may be established. The most
common variations seen are based on age at last birthday, age next birthday,
or age at nearest birthday.
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Insurance Commissioner
Common title for the head of a State Department of Insurance. (In some
states called "Superintendent" or "Director".)
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Insurance Department
A governmental agency in each state charged with administration of the insurance
laws including licensing of agents and companies and regulation and examination of
them. In some jurisdictions, a division of some other state department or bureau.
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Insurance Policy
The entire written contract of insurance, usually including the application.
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Insurance Premium
A sum of money which, when paid to the insurance company, puts into or maintains
in force an insurance contract. It reimburses the company for the risk assumed.
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Insurance Risk
The chance of occurrence of an event; in some usage, refers to the insured person.
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Insured
The party to an insurance arrangement to whom, or on behalf of whom, the
company agrees to indemnify for losses, provide benefits, or render service. It
is preferred to such terms as "policyholder," who may not be the insured.
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Insurer
The party to an insurance arrangement who undertakes to indemnify for losses,
provide other pecuniary benefits, or render service. It is desirable to use the
word "insurer" in preference to carrier or company since it is a functional word
and insurer is generally used in statutory law.
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Insuring Clause
The clause in a policy that specifies in brief the contract's intent and the
parties thereto.
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Joint Life Policy
A policy that insures the lives of two or more people, paying the face amount
upon the first death of the persons covered.
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Juvenile Insurance
Life insurance written on the life of one not yet considered an adult for
life insurance purposes.
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Lapse
Termination of a policy because of failure to timely pay enough premium to
keep it in force.
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Lapsed Policy
A policy for which the policyholder has failed to timely pay enough premium
to keep it in force beyond the grace period.
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Legal Reserve
The amount an insurer is required to hold as a reserve, using the mortality
table and a maximum assumed interest rate prescribed by state law.
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Level Premium
An insurance premium which remains constant during the entire policy period.
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Level Premium Term Insurance
Insurance for which the amount of premium remains constant during the policy period.
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Level Term Insurance
The amount of insurance protection in the term policy remains constant during
the policy period.
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Level Term Rider
A level amount of term insurance added to a permanent insurance policy.
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License - Agent
A state license which enables an insurance agent to do business in that state.
Renewable periodically.
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Life Expectancy
Average number of years of life remaining for persons at any given age.
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Life Insurance
Insurance paying a specified amount on the death of the insured, to his estate
or to a named beneficiary.
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Loan Value
That amount of cash value in a policy which may be borrowed by the owner.
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Lump Sum
Proceeds of a policy taken all at once. A single amount.
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MIB (Medical Information Bureau)
An organization serving as a clearinghouse of medical information on impaired
risks reported to it by companies who are members of the service and reported by
the organization to member companies as a source of underwriting information on
applicants.
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Misrepresentation
The use of written or oral statements falsely representing the terms, benefits,
or privileges of a policy, or the health or condition of the proposed insured.
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Misstatement Of Age Clause
Provides that if misstatement of age is discovered after the policy's issued,
the company can, if the insured is currently alive, adjust the premium amount on
future premiums and request payment of any additional premium the policyowner
should have paid; or if the insured has died, adjust the face amount of the
policy to fit the premium that was paid at the correct age before paying the claim.
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Mortality
The average number of people who die each year, providing one's chance or
risk of dying at any given age.
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Mortality Table
A statistical table showing the number of deaths for all ages from 0 to 100.
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NAIC (National Association of Insurance Commissioners)
An association of state insurance commissioners, active in discussions of
regulatory problems and in the formation and recommendation of uniform practices
and legislation.
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Policy
The contract effecting insurance, or the certificate thereof, by whatever
name called, and including all clauses, riders, endorsements, and papers attached
thereto and made a part thereof.
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Policy Loan
A loan taken by the policyholder from the company using the insurance cash
value as collateral.
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Policyowner
The person who has the right to exercise the rights and privileges in the
policy contract. Such person may or may not be the Insured, depending on
policy ownership and assignment, if any.
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Premium
(1) Part of the consideration for the insurance. (2) The periodic payment made
to keep a policy in force.
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Premium Mode
The premium paying frequency selected by the policyowner; that is, monthly,
quarterly, semiannual, or annual (or any other mode acceptable to the company).
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Proof Of Death
A usual requirement before paying a death claim is that a formal proof of
death be submitted to the company.
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Proposed Insured
The person on whose life the policy will be underwritten.
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Reinstatement Clause
Provides the conditions under which a lapsed policy may be reinstated.
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Rider
A contract modification attached to a policy that changes the conditions of
the policy by expanding or decreasing its benefits or excluding certain conditions
from coverage.
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Risk
A person or thing insured. (Impaired or sub-standard risk; an applicant
whose physical condition -or moral habits- do not meet the standard on which
the rate is based.)
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Settlement Option
A method of receiving life insurance proceeds other than in a lump sum.
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Standard Risk
A person entitled to life insurance protection without extra rating or
special restrictions.
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Substandard Risk
A risk less acceptable (more expensive) than standard.
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Suicide Clause
States that if the insured commits suicide within a specified period of time,
the policy will be voided. Paid premiums are usually refunded. The time limit
is generally one or two years.
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Term Insurance
Life insurance which normally does not have cash accumulation and is
issued to remain in force for a specified period of time, following which
it is subject to renewal, convertibility, or termination as per policy provisions.
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Underwriter
A person trained in evaluating risks and determining the rates and coverages
that will be used for them.
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Underwriting
The process of evaluating a risk for the purpose of deciding whether to issue
insurance coverage.
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