Introduction to Personal Insurance terms.

 

  • Accelerated Benefit Provision: A provision in many new policies which will allow the policy owner to receive a portion of the death benefit early if the insured person is diagnosed with a terminal illness or permanently confined to a nursing home.
  • Accidental Death Benefit: A rider added to a policy that provides an additional benefit if the insured dies from accidental causes.
  • Accumulation Phase: The phase in which you pay into your annuity.
  • Actual Cash Value: Unless otherwise defined in the policy, Actual Cash Value in California means Fair Market Value. The Fair Market Value of an item is the dollar amount that a knowledgeable buyer (under no unusual pressure) is willing to pay and a knowledgeable seller (under no unusual pressure) is willing to accept.
  • Agent: A licensed individual or organization authorized to sell and service insurance policies for an insurance company.
  • Annuitization Phase: The phase in which you receive monthly payment from your annuity.
  • Annuity: A right to receive amounts of money regularly over a certain fixed period, in perpetuity, or, especially, over the remaining life or lives of one or more beneficiaries.

 

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  • Basis Points: The fees in your annuity; reflects a percentage of your investment.
  • Binder: A short-term agreement that provides temporary insurance coverage until the policy can be issued or delivered.
  • Broker: A licensed individual or organization who sells and services insurance polices on your behalf.

 

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  • Claim: Notice to an insurance company that a loss has occurred that may be covered under the terms and conditions of the policy.
  • Certificate: A document provided to a person insured under a group insurance policy that provides evidence that the coverage exists.

 

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  • Death Benefit: The amount of money your beneficiary receives if you die before you begin the annuitization phase; generally the value of your annuity or the amount you have invested, whichever sum is greater.
  • Declarations (DEC) Page: Usually the first page of an insurance policy that contains the full legal name of the insurance company, the policy number, effective and expiration dates, premium payable, the amount and types of coverage, and the deductibles.
  • Deductible: The amount of the loss that the insured is responsible to pay before benefits from the insurance policy are payable.
  • Depreciation: The actual or accounting recognition of the decrease in value of property over a period of time according to a predetermined schedule.

 

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  • Endorsement: A written agreement that changes the terms of an insurance policy by adding or subtracting coverage.
  • Evidence of Insurability: Medical and other information about a person applying for insurance that the life insurance company keeps confidential, but uses to decide whether the policy can be issued and what premiums will be charged.
  • Exclusion: A contractual provision in an insurance policy that denies or restricts coverage for certain perils, persons, property, or locations.

 

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  • Face Amount: The amount to be paid to the beneficiary when the insured dies. It will be reduced by any unpaid policy loans and interest on those loans, and may be increased by any dividends.
  • Free Look: The right of the policyowner to have a period of ten or more days to examine an insurance policy and, if not satisfied, return it to the company for a full refund of all amounts paid.

 

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  • Grace Period: A period of time (usually 31 days) after the premium due date when an overdue premium may be paid without penalty. The policy remains in force throughout the period.
  • Guaranteed Insurability: An option that permits the policyholder to buy additional stated amounts of life insurance at certain times in the future, without having to provide new evidence of insurability.

 

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  • Illustration: A document used in life insurance sales presentations showing year-by-year numbers indicating how a policy will work. Usually it assumes that amounts being paid today will continue in all future years.
  • Insured:
    • (Homeowners) The policyholder who is entitled to covered benefits in case of an accident or loss.
    • (Life) The person whose life is covered by a life insurance policy; the policyowner; the policyholder.
  • Insurer: The insurance company that issues the insurance policy, and agrees to pay for losses and provide covered benefits.

 

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  • Lapse: The discontinuation of insurance without cash value when the required premium is not paid. If cash value exists, there may be nonforfeiture provisions available.
  • Loan Value: The amount which can be borrowed by the policyowner from the company using the value of the policy as collateral. Usually the interest rate payable on the loan varies based on an index defined in the policy.

 

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  • Mode of Premium Payment: The frequency of premium payments during the policy year. Premium payments can usually be made on annual, semi-annual, quarterly, or monthly mode.
  • Mortality and Expense (M&E): A factual falsification made in such a manner that the insurance company would have refused to insure the risk if the truth had been known at policy issuance. A material misrepresentation gives an insurance company grounds to rescind a contract.
  • Mortality Table: A statistical table showing the death rate (probability of death) for each age.

 

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  • Nonforfeiture Options: A provision in the policy that allows the policyowner to choose how the cash value of the policy will be used if the policy is surrendered or lapses due to nonpayment of premium.
  • Non-Qualified Annuity: An annuity that is funded with after-tax dollars.

 

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  • Ownership: All rights, benefi ts, and privileges under a policy controlled by the owner, who is usually the insured. Ownership may be transferred or assigned to someone else by written request of the current owner.

 

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  • Paid-Up Insurance: A life insurance policy where all premiums have already been paid, with no further premium payment due.
  • Participating Insurance: Insurance on which the policyowner is entitled to share in the surplus earnings of the company through dividends, which reflect the difference between the premium charged and the actual earnings and costs of providing coverage.
  • Policy: The printed document issued to the policyowner by the company stating the terms of the insurance contract.
  • Policy Year: A one-year period starting on the day and the month the policy was issued. The first policy year starts on the date of issue, and ends on the day before the policy's first anniversary date.
  • Premium: The payment a policyowner is required to make to an insurance company to purchase insurance coverage and to keep the policy in force.

 

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  • Qualified Annuity: Annuity that is funded with pre-tax dollars.
  • Quote: An estimate of the cost of insurance based on information supplied to the agent, broker or insurance company.

 

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  • Rated Policy: A policy issued with an additional premium to cover the extra risk involved if an insured has impaired health, a hazardous occupation or hobby, or is a private pilot.
  • Reinstatement: The restoring of a lapsed or surrendered policy to full force and effect. The company requires evidence of insurability and payment of all amounts necessary, including interest, to put the policy into the condition it would have been in had the lapse or surrender not occurred. The company is not obligated to reinstate a policy.
  • Rider: A provision added to a policy that provides additional benefits, usually accompanied by a corresponding premium increase or change.

 

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  • Settlement Option: The manner in which the insured or beneficiary may choose to have the policy proceeds paid.
  • Suicide Clause: A policy provision which reduces or eliminates the amount to be paid if the insured dies from suicide within the first two policy years.
  • Standard Risk: The classification of an applicant for a life insurance policy who fulfills the physical, occupational, and other requirements on which most of the company's policies are issued. Someone whose characteristics are more favorable may be classified as a "Preferred Risk." When the characteristics are less favorable, the applicant may be characterized as "Rated" or refused coverage altogether.
  • Surrender: To voluntarily terminate or cancel a policy or the act of getting out of your annuity for its cash value or other nonforfeiture options. Usually a fee is applied if you surrender your insurance policy or annuity within the first seven or eight years of owning it.

 

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  • Tax Deferral: The money that accumulates in your annuity grows tax-deferred, meaning you do not pay taxes on it until you begin receiving annuity payments.
  • Term Certain Annuity: An annuity that provides you with income payments for a specific period of time, such as 10 or 20 years, rather than a lifetime.

 

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  • Underwriting: The process of evaluating applicants for insurance and classifying them fairly, so the appropriate premium rate may be charged. This may involve a physical examination of the applicant.

 

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  • Waiver of Premium: A rider added to policy that will waive the premium payments required by an insured during the total disability of the insured.

 

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  1. The glossary is for informational purposes only.
  2. The actual terms of an insurance policy prevail over the information provided in the glossary.
  3. In the case of a dispute, the insurance policy is controlling and a court will rely on the policy as it is written in English to resolve the dispute.
  4. The policy is the sole source of rights and obligations of the insurer and the insured.
  5. The information contained in the glossary does not create rights or obligations on the part of the insured, the insurer, the agent, the broker, or the state.
  6. The glossary is not intended to be a substitute for the actual policy written in English.
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