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Glossary of Life Insurance Terms
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Definitions written so you can actually understand them. Browse alphabetically, or search for a word or term by typing it into the search field located in the top navigation by the GO button (above right).
Absolute Assignment
The irrevocable transfer of ownership of a life insurance policy from one party to another. See also assignment.
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Accelerated Benefits
Some companies offer "accelerated benefits" as a rider to policies. Also known as a “living benefits” rider, the document allows, under certain circumstances, for a policyholder to receive the proceeds of a life insurance policy prior to death. Such circumstances include catastrophic or terminal illness, the policyholder requiring long-term care, or his being confined to a nursing home.
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Accidental Death and Dismemberment (AD&D) Rider
A supplementary benefit rider that provides for an increase in the basic death benefit of a life insurance policy. This increased amount is payable only if the insured dies or loses any two limbs or the sight of both eyes as the result of an accident. Some AD&D riders pay half of the increased benefit amount if the insured loses one limb or the sight in one eye.
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Accidental Death Benefit (ADB) Rider
A supplementary benefit rider that provides for an increase in the basic death benefit of a life insurance policy. This increased amount is payable only if the insured dies as the result of an accident. See also double indemnity.
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Accidental Means Provision
A provision in the life insurance policy which states that an accidental death benefit will be payable if the insured's death was the result, directly and independently of all other causes, of bodily injury caused solely by external, violent, and accidental means.
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Accidental Result Provision
A provision in the life insurance policy which states that an accidental death benefit will be payable if the insured's death was the result, directly and independently of all other causes, of accidental bodily injury.
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Accrued Benefit
In a defined benefit pension plan, this is the amount of pension benefit which has accumulated in the pension plan on behalf of an individual participant at any particular time.
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Accumulated Cost of Insurance
A factor used in the calculation of life insurance reserves. For any given group of policyholders, the ACI equals the net single premium that would have to be paid at the end of the term of coverage by all non-dying policyholders to cover the death benefits paid to the policyholders who died during the term.
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Accumulated Funding Deficiency
The amount by which a qualified pension plan fails to meet the minimum funding standards set by U.S. law. Plans with an accumulated funding deficiency are subject to a penalty tax and enforcement provisions.
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Accumulated Value
The amount of money invested plus the interest earned on that money.
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Accumulation at Interest Option
Also called the accumulation option, this is the dividend option of a life insurance policy under which policy dividends are left on deposit with the insurer to accumulate at interest.
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Accumulation Period
The period during which premiums are payable on a deferred annuity.
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Accumulation Units
The ownership-shares in a variable annuity's separate account fund. When a person pays premiums for a variable annuity, those premiums are credited to the purchaser's account as a certain number of accumulation units. After the accumulation period ends, the accumulation units are used to buy annuity units. See also annuity units.
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Acquisition Expenses
See policy acquisition costs.
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Actuarial Assumptions
The mortality, morbidity, interest, expense, and other forecasts used to calculate premium rates and reserves. In pension planning, it would be the assumptions that actuaries make in the areas of investment earnings, mortality, plan expenses, salary levels, and employee turnover. In either case, these assumptions affect the amount of the annual contribution that is necessary to adequately fund a defined benefit pension plan.
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Actuarial Cost Method
In a defined benefit pension plan, this is a method of calculating the annual amount the plan’s sponsor must contribute to fund a given set of plan benefits for a particular group of participants.
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Actuarial Department
Probably the most important department in a life insurance company, and the one responsible for seeing that the company's operations are conducted on a mathematically sound basis. The actuarial department designs and revises a company's life insurance products, calculates premium and dividend rates, determines what a company's reserve liabilities should be, and establishes nonforfeiture, surrender, and loan values. It also does the research needed to predict mortality and morbidity rates, to establish guidelines for selecting risks, and to determine the profitability of the company's products.
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Actuarial Valuation
The value an actuary gives of a pension plan based on its assets and liabilities. Based on statistical probability, the actuarial valuation is used to determine if the assets are adequate to fund the plan's liabilities. If the answer is “no,” plan’s sponsor must increase contributions to make up the deficiency; if the assets are more than adequate, the plan sponsor can reduce contributions.
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Actuary
A mathematician and technical expert working in the field of life insurance. The actuary applies the theory of probability to calculate mortality rates, morbidity rates, lapse rates, premium rates, policy reserves, and other values.
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Additional Term Insurance Option
Also called the additional insurance option, this life insurance policy dividend option allows the policyholder to essentially use his dividends to purchase an extra year of term life insurance.
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Adjustable Life Insurance Policy
With an adjustable life insurance policy, the policyholder has the option of altering the policy’s plan over time. Changes to the coverage amount or the premium payment are two of the options most frequently offered.
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Admitted Reinsurer
Also called an authorized reinsurer, this term applies to a reinsurer that is licensed to accept reinsurance in a given jurisdiction in the United States .
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Advanced Underwriting Department
This department of an insurance company is responsible for providing technical and sales assistance to agents involved in estate planning and business insurance cases. It’s frequently referred to as the estate planning department.
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Agency
This describes the legal relationship between an agent and a principal. In the case of life insurance and the "dedicated agent" model, the agent works for both the policyholder and the insurance carrier and is considered the agent of both.
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Agency Agreement
A document drawn up between a principal and an agent that describes the scope of the agent's actual authority.
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Agency Relationship
A legal relationship between two parties by which one party, the agent, is authorized to perform certain acts on behalf of the other party, the principal.
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Agency System
As it pertains to life insurance, this is a distribution system in which carriers use their own commissioned agents to sell and deliver insurance policies. The agency system is the most common system for distributing individual life insurance products and includes the branch office distribution system and the general agency distribution system.
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Agent
A party who is authorized by another party, the principal, to act on the principal's behalf in contractual dealings with third parties. . In the case of life insurance and the "dedicated agent" model, the agent works for both the policyholder and the insurance carrier and is considered to have two principals for each transaction.
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Agent-Brokers
Career agents who place business with companies other than their primary companies. Since ChoiceAutoInsurance.com helps customers find life insurance policies offered by a variety of carriers, we could be considered an electronic form of agent-broker.
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Agent-Owned Reinsurance Company (AORC)
This is a “captive” reinsurance company formed by an insurance company and owned by a group of that company's agents. The reinsurance company insures all business written by those agents, allowing them to share in the profits of their own labor. ChoiceAutoInsurance.com does not own, partially own, or participate in any reinsurance company.
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Agent's Statement
This is a section of the insurance application that is filled out by the agent. Because a life insurance agent has a fiduciary responsibility to both the customer and the carrier, this section of the application often carries a lot of weight. Here the agent would report anything he knows or suspects about the applicant that is not reported by the applicant. For example, he might note that the applicant is up for a promotion that could have him traveling frequently to countries with substandard healthcare and rampant infectious diseases. Or he might note that the applicant’s home shows evidence that he takes his asthma seriously, that it’s clean, carpet-and-cloth-free, has several air filters and a treadmill that shows signs of regular use.
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Age of Majority
The age at which a person has the legal capacity to enter into and be bound by a contract. Anyone who has not yet the age of majority would be considered a “minor.”
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Aggregate Mortality Table
A mortality table based on the experience of all insured lives, including mortality rates both during and after a window of time called the “select period.” Due to the scope of the data include in the aggregate mortality table, it is considered the gold standard for actuaries working in the field of life insurance.
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Aleatory Contract
This is a contract whereby one party provides something of value to another party in exchange for a conditional promise by the other party to perform a stated act should a stated event or any of a set of events occur. Life insurance contracts are aleatory because the policyholder pays premiums to the insurer, and the insurer in return promises to pay benefits in the event of death.
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Alien Corporation
In the United States , a company that is incorporated under the laws of another country.
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American Council of Life Insurance (ACLI)
A U.S. organization which collects and disseminates data on life insurance markets.
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Annual Premium
The Annual Premium is one of the four modes of premium you can select to pay your policy. Many of the insurance companies will give you a discount for paying your policy annually.
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Annual Statement
Each year life insurance carriers must file this report with the appropriate regulatory agency. It contains detailed accounting and statistical data that regulators use to evaluate a life insurance company's solvency and its compliance with insurance laws.
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Annuitant
The person designated to receive annuity payments. The term also refers to a person whose lifetime is used as the measuring period to determine how long benefits are payable under a life annuity.
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Annuity
A series of payments that are made or received at regular intervals. The term also refers to the contract that provides for such a series of payments to be made or received at regular intervals. Annuities come in a variety of types. For more specifics, see the listings below.
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Annuity Certain
This is an annuity that provides a benefit amount payable for a specified period of time regardless of whether the annuitant lives or dies.
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Annuity Due
A series of payments in which the payments are made at the beginning of each interval of time.
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Annuity Immediate
A series of payments in which the payments are made at the end of each interval of time.
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Annuity Mortality Table
A tabulation of probabilities of dying at each age which is used by actuaries to calculate premiums and reserves for annuities in which benefits are paid only if a designated person is alive. Annuity mortality tables usually project lower rates of mortality than do mortality tables that are used for life insurance.
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Annuity Period
The time between each benefit payment made under an annuity contract.
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Annuity Units
These are the ownership shares in a variable annuity's separate-account fund at the end of the accumulation period. Annuity units are bought with accumulation units and are used to determine benefit payment amounts.
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Applicant
The person applying for a life insurance policy.
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Application
A form that must be completed by an individual seeking insurance coverage. This form provides the insurance company with much of the information it will need to weigh the risk of the applicant and to decide whether or not to issue a policy for coverage.
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Approval Type Temporary Insurance Agreement
An agreement issued along with a conditional premium receipt that provides temporary life insurance coverage as of the date of approval.
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ART (Annually Renewable Term)
This is a term policy where the premium increases a little bit every year and the coverage stays the same.
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Assessment Method
Also called the pre-death assessment method, this was an early method of funding life insurance. Under the assessment method, members of the plan were charged in advance for the amount of money that the administrators estimated would be needed to pay each year's death claims.
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Asset-Liability Matching
The process of adjusting an insurance carriers asset holdings through investing, purchasing, selling, and adjusting, so that cash is available when it is needed to cover the carrier’s liabilities.
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Assets
Items of value owned by a given party. Such items would include cash, data processing equipment, real estate holdings and securities investments. Assets are shown on the balance sheet of a life insurance company's Annual Statement as required by law or by insurance department ruling.
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Asset Share
A projection figure that shows the amount of assets any block of insurance policies will have accumulated by a given time.
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Asset Share Calculation
A computation that simulates the way in which the assets of a block of policies should grow, depending on various assumptions about future interest rates, mortality, morbidity, expenses, lapses, and other such factors.
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Assignee
This is the party to whom all or certain contractual rights are transferred under either an absolute or collateral assignment.
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Assignment
The transfer of ownership rights in a life insurance policy from one party to another. The term also applies to the document that causes the transfer of ownership rights to go into effect. See also Collateral Assignment.
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Assignment of Benefits
An authorization directing an insurance carrier to make payment of benefits directly to a party other than the official beneficiary.
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Assignor
The opposite of the Assignee, this is a party who transfers certain contractual rights to another party.
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Association Group Insurance
Just as the name implies, this is group insurance extended to the members of a trade, professional, or other association.
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Assumption Reinsurance
A reinsurance agreement by which one company permanently transfers full responsibility for a block of policies to another company.
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Attained Age
The age of the policyholder at the time the policy was issued plus the number of years elapsed since the policy was issued. In essence it is the age of the policyholder.
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Attained Age Conversion
The changing of a life insurance policy from one form to another (such as from term life insurance to whole life insurance) at a premium rate that is based on the age the insured person has reached at the time the change takes place.
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Automatic Dividend Option
Some life insurance policies with more than one dividend option associated with them will trigger the automatic dividend option when the policyholder, for one reason or another, doesn’t choose from among the options available.
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Automatic Nonforfeiture Option
Some life insurance policies with multiple nonforfeiture options will automatically assign a specified nonforfeiture benefit when a renewal premium is not paid by the end of the grace period and the policyholder has not elected another nonforfeiture option.
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Automatic Premium Loan (APL)
A life insurance nonforfeiture option that allows the carrier to cover overdue premiums on a policy by establishing a loan against the policy's cash value.
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Aviation Exclusion
A life insurance contract provision which specifies that the death benefit is not payable if the insured dies as a result of certain aviation activities.
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