401 K Plan
A qualified retirement plan in which the employee can set aside a portion of their income with pre-tax dollars.
Absolute Assignment v. Collateral Assignment
Absolute: A permanent and irrevocable transfer of rights and/or benefits by the policy-owner.
Collateral: A temporary and or revocable transfer of benefits by the policy-owner
Accelerated Death Benefit
Policy provision that allows full or partial payment of the policy's death benefit before the insured's death if he/she is terminally ill.
Accidental Death benefit
An extra cost rider that requires the insurance company to pay an additional benefit in the event that the insured dies within 90 days of an accident as a direct result of the accident.
Accumulate at Interest
The dividend option where the policy-owner leaves the dividends with the insurer to invest and earn interest.
Since the insurer created all the documents of the contract, any ambiguities will be settled in favor of the insured. Since the insurer wrote the contract they are stuck with it.
The tendency for less favorable risks to seek or continue insurance to a grater extent than more favorable risks.
Agency Agreement or Agency Contract
A legal document containing the terms of the agreement between the agent and the insurance company. It clearly defines what an agent can and cannot do, and how he/she will be compensated.
Expressed: Power or authority specifically
granted in writing to an agent by the insurance
company in their Agency Agreement. Apparent:
Power or authority that the public reasonably
assumes an agent has based upon his/her
Implied: Power or authority that is not
expressly granted by the company but that an
agent can assume or that are implied he/she has in order to transact insurance business.
Anyone who sells or aids in the selling of
insurance. Legally represents the company.
A written report from the agent submitted to the
insurer along with the application disclosing what
the agent knows, observed, or learned about the
proposed insured's risks.
Unequal exchange of value. One party may
obtain a far greater value than the other under
Annual Renewable Term
A Term Life Insurance contract which gives the
policyowner the option to renew the policy each
year without showing proof of insurability.
Premiums increase at each renewal.
The person that buys an annuity; may or may not be an annuity's policyowner.
A contract/policy that guarantees to pay income
for a specified period of time or for the life of the
annuitant. Designed to prevent people from
outliving their savings.
Authorization of an agent/producer by an insurer
to represent the company.
The period of time between the youngest child
turning 16 and the widow(er) reaching retirement
age during which no Social Security Survivor
Benefits are paid to the surviving spouse.
Business use of Life Insurance where partners in a business buy life insurance on each other.
They agree that when one of them dies the
survivors have the right to purchase the
deceased partner's share of the business. The
death benefit from the insurance is used to
finance the purchase.
Cash Nonforfeiture Option
Policyowner receives a lump-sum payment of
the current cash value of the policy upon
surrender of the policy. The policy cannot be
Cash Settlement Option
Upon maturity of an insurance policy the
beneficiary receives a lump-sum payment of the
entire policy proceeds due
That part of an insurance policy that is the equity
amount legally available to the policyowner. The
cash value accumulates throughout the duration
of the policy. Also known as living benefit or
Public official in charge of the state's department
of insurance. Charged with regulating the
insurance industry in his/her state by enforcing
the insurance laws.
Certain conditions must be met in order for policy to pay-out.
An interim insuring agreement under which the
insurance company agrees to start coverage on
the later of either the date of application or the
date of the medical exam IF the proposed
insured is found to be insurable on that date.
A necessary element of a contract; something of
value exchanged for the transfer of risk.
Insured's consideration is payment of premiums
and truthful statements on the application.
Insurer's consideration is promises contained in
An alternate beneficiary designated to receive
the policy proceeds in the event that the primary
beneficiary dies before the insured.
Contributory Plan v. Noncontributory Plan
Contributory: Group insurance plan under which
the employees contribute to the payment of
premiums. Noncontributory: A group insurance
plan in which the employer pays all the
premiums for the policy.
Term insurance that specifically permits
"conversion" of the policy into permanent
protection without proof of insurability.
Term life insurance in which the face amount of
the policy decreases over time in scheduled
steps. Most often used to cover a debt obligation
Distributions paid out by insurance companies.
Stock insurers pay dividends (portion of profit) to
stockholders and they are taxable. Mutual
insurers pay dividends (return of unneeded
premiums) to policyowners and they are not
taxable. Dividends are never guaranteed.
Equity Indexed Annuity
The annuity that has a guaranteed minimum
interest rate and allows the annuitant to invest
money in an index (i.e.: S&P 500). The
investments grow as the index grows.
Legally preventing someone from asserting or reasserting a known right that they have previously waived.
Extended Term Insurance
Nonforfeiture option where cash value is used to
make a single premium payment on a Term
Insurance Policy of the same face amount as the original policy. Original policy can be reinstated. Not available on rated policies.
Amount payable in the event of death of the
insured. Also called face value, death benefit,
policy proceeds, coverage, stated amount,
indemnity amount or proceeds to the beneficiary.
Facultative Reinsurance v. Treaty Reinsurance
Facultative: Transferring risk from one insurance
company to another on a policy-by-policy basis.
Treaty: Transferring risk from one insurance company to another under a blanket agreement.
Fair Credit Reporting Act
A federal law that protects consumers in regard
to their credit history. Establishes guidelines for
how companies can access consumers' credit
reports and what types of disclosures and
notifications are required.
Financial Needs Approach
In determining how much life insurance is
needed the needs of the surviving family are the
focus. Using needs analysis worksheets, an
amount is determined to meet the needs of the
surviving family regardless of the earnings of the
Fixed Amount Annuity
A Life Annuity that guarantees a fixed dollar
payment at regular intervals during the lifetime of
Fixed Amount Settlement Option
Upon maturity of an insurance policy the
beneficiary receives periodic payments of a set
dollar amount from the policy proceeds.
Fixed Period Settlement Option
Upon maturity of an insurance policy, the
beneficiary receives income from the policy
proceeds for a stated period of time.
Free Look Provision
A policy provision required by state law that
establishes a set number of days (usually 10) for
the policyowner to review a newly issued policy.
The policyowner may return the policy to the
insurer during this time for any reason and
receive a 100% refund. Also known as refund
provision, unconditional refund provision, return
provision, exchange provision, or right to
General Account v. Separate Account
General Account: Contains the regulated, or
guaranteed, funds of an insurance company.
Separate Account: Contains the investments of
an insurance company. These investments have no guaranteed rate of return and are regulated by the SEC and NASD.
A prescribed period of time during which the
policy stays in force without the payment of
premiums. Mandated by state law and is usually
30 or 31 days.
Graded Premium Policy
Premiums for the policy increase regularly for 5
to 20 years and then level off. Death benefit
An insurance policy that covers multiple people
(who have a common interest). A Master Policy
is issued to the policyowner and individual
insureds receive Certificates of Insurance.
Guaranteed Insurability Rider
Optional rider that enables the policyowner to
purchase additional amounts of coverage at predetermined times without proof of insurability.
A state mandated association of all insurance
companies designed to protect consumers from
impaired or insolvent companies.
Anything that increases the likelihood that a loss
will occur (Faulty wiring).