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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).
Capacity
The largest amount of life insurance an insurer or a reinsurer is willing or able to underwrite. The term can refer to an insurer's capacity on one individual or to its capacity for its entire portfolio of policies.
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Captive Insurance Company
An insurance company, formed and controlled by a separate company, whose purpose is to provide insurance to the controlling company. See also agent-owned reinsurance company (AORC).
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Cash Surrender Value
The amount of money you can receive if you surrender your life insurance policy or annuity. If there is a policy loan, the cash surrender value is the difference between the cash value printed in the policy and the loan value to pay the premiums.
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Cash Payment Option
A life insurance policy dividend option under which policy dividends are paid to the policyholder in cash as opposed to being held as part of the policy and reinvested.
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Cash Refund Option
A type of life-income-option-with-refund that stipulates that, should any proceeds remain when the beneficiary dies, they will be paid in a lump sum to the contingent payee. Contrast with the installment refund option.
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Cash Surrender Value Option
A life insurance policy nonforfeiture option whereby a policyholder who stops making premium payments can elect to surrender (or cancel) the policy and receive the policy's cash surrender value.
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Cash Value
This is the amount of money a life insurance policyholder would receive (before adjusting for late premiums, policy loans and the like) if the late policyholder either canceled the policy or allowed the policy to lapse and surrendered it to the insurance company.
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Ceding Company
In a reinsurance transaction, the ceding company is the insurer that purchases reinsurance to cover all or part of those risks that it does not wish to retain in full. Also called the direct insurer, direct writer, or direct-writing company.
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Certain Payment
A payment that will definitely be made under any condition or circumstance.
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Certificate of Assumption
When a block of policies have been assumed by a reinsurer, each policyholder is sent a certificate informing them that the assumption has occurred and to provide them with information about the new insurance company backing their policies.
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Certificate of Authority
A certificate issued by a state's Department of Insurance authorizing a insurance carrier to issue specific types of insurance within the state.
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Certificate of Indebtedness
A certificate issued by an insurance carrier to the beneficiary of a life insurance policy which specifies a guaranteed minimum interest rate and the frequency with which the insurer will make interest payments under the interest settlement option.
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Certificate of Insurance
A document given to each person insured by a group insurance plan. The document indicates the type and amount of coverage each group member is entitled to as well as the benefits of the coverage. The certificate may also contain a summary of the contract terms as they affect individual group members.
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Cession
This is a reinsurance term that carries two meanings: First, it refers to the act of ceding blocks of insurance policies to the reinsurance carrier. Second, it refers to a parcel or unit of insurance policies that the company has ceded to the reinsurance carrier.
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Claim
A request for payment under the terms of an insurance policy.
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Claimant
The person or party making a formal request for payment of benefits due under the terms of an insurance contract.
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Claims Administration Department
The department in a life insurance company responsible for processing claims. In this department, claim examiners review claims presented by policyholders or beneficiaries, verify the validity of claims, and authorize the payment of benefits to the proper person.
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Claims Examiner
An employee of an insurance company whose responsibilities include investigating claims, approving those that are valid, and denying those that are invalid or fraudulent. While no one appreciates having their valid claim questioned, the claims examiner’s role is critical in ensuring the carrier doesn’t bleed out money to fraudulent claimants thereby leaving little or no reserves to protect the interests of the overwhelming majority of honest policyholders.
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Class Beneficiary Designation
A way of ascribing a group of people as beneficiaries to a life insurance policy, rather than providing the names of each person individually, such as “children of the insured”.
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Clean-up Fund
A lump-sum life insurance death benefit designed to pay the insured's outstanding debts and final expenses.
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Collateral Assignment
This is a transfer of some ownership rights from one party to another, generally for a temporary period, as part of a financial transaction or contract. Insurance policies are often used as collateral for a loan, in which case all transferred rights revert to the assignor when the loan is repaid. See also Assignment.
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Commission
The amount of money paid to a life insurance agent for selling an insurance policy. A commission is almost always calculated as a percentage of the premium. ChoiceAutoInsurance.com is neither an agent nor a broker and does not collect a commission from any life insurance carrier for any policy our customers purchase.
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Commissioners Method
The official method used by life insurance carriers for calculating modified net premiums and reserves their policies.
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Common Disaster Clause
This life insurance policy provision was designed to deal with large tragedies that affect not only the policyholder but his beneficiary(s), like a flood, earthquake or fire. The provision states that the primary beneficiary must survive the policyholder by a specified period, such as 60 or 90 days, in order to receive the benefits. Otherwise, the policy will treat the primary beneficiary as though he had died before the policyholder, and the benefits will be paid according to the policyholder’s wishes under those conditions, next- rather than to the heirs of the primary beneficiary.
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Community-Rating
Applying the same premium rate structure to certain group insurance subscribers, regardless of their past or potential loss experience. See also pooling.
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Conditional Premium Receipt
When an applicant pays an initial premium for a life insurance policy which will become effective only if the applicant is found to be insurable, the insurance carrier issues a conditional premium receipt. This is also referred to as a conditional receipt. Compare to binding premium receipt.
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Confirmation Certificate
A certificate issued to the beneficiary of a life insurance policy that outlines the amount of life insurance proceeds in a retained asset account, the account number, and the current interest rate.
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Conservation
The efforts made on the part of a life insurance carrier to prevent a policy from lapsing.
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Constructive Delivery
Legally equal to physical delivery of a life insurance policy, constructive delivery occurs when the insurance carrier completes and issues a life insurance policy with the intention that the carrier is unconditionally bound by the provisions of that policy. The term is most commonly used to describe the point when the life insurance policy is physically delivered to the applicant’s agent.
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Consumer Report
Defined by the Fair Credit Reporting Act, a consumer report is a communication issued by a consumer reporting agency relaying any information on an individual consumers creditworthiness, credit standing, credit capacity, general reputation or personal characteristics.
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Consumer Reporting Agency
An organization that regularly prepares consumer reports and furnishes them upon request to other parties or organizations. Also called a credit reporting agency. See also Fair Credit Reporting Act (FCRA).
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Contestability Period
In most cases a life insurance carrier has two years to find any material misrepresentations in a contract that would invalidate the policy. After the contestability period, the carrier must honor the policy regardless of the misrepresentations. See also incontestable clause.
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Contingencies
Events that are possible but that may or may not happen. Life insurance carriers base their premium rates and their willingness to accept risks partly on the probability that certain contingencies will or will not occur.
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Contingency Reserve
A reserve voluntarily established a life insurance carrier to help pay any unusual and unexpectedly large claim amounts. See also special surplus funds.
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Contingent Beneficiary
This is the entity that a life insurance benefit would pay to if the primary beneficiary deceased before the insured. Also called the secondary beneficiary or the successor beneficiary.
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Contingent Payee
A party designated to receive any life insurance policy benefits that are still payable under a settlement option at the time of the primary payee’s death. Unlike the contingent beneficiary, the contingent payee's rights do not end when the insured dies.
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