Glossary
A
Agent - An agent is a representative of the policy holder, who is licensed
in the state(s) in which he or she operates. Agents either work independently, where
they will represent at least two insurance companies or act as a direct writer,
representing one company only.
Annuity - An annuity is a contract that provides a periodic income at well
defined intervals, usually for the duration of the annuity holder's life.
Annuity Certain - This is a contract, much like an "annuity" but
provides income only for a specified number of years, usually without regard towards
life or death.
Application - An application in the context of life insurance is a statement
made by the person applying for life insurance. The application will contain information
that is relevant towards processing the suitability and availability of life insurance
for the person named in the application. Ultimately, information from the application
will be used by the Life Insurance Company or "carrier", to assess the
risk factor, underwriting classification and premium rates of the applicant.
An application in the context of a life settlement is a form with basic personal
and product information that is submit by the insured to potential buyers of the
insured's policy.
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B
Beneficiary - A beneficiary is either a person, trust or corporation, who
is named in a life insurance policy to receive the agreed net benefit payment upon
maturity of the policy.
Bonus Rate Annuity - This is an annuity which pays an extra percentage of
interest during the first year that it is in force. Subsequently, interest paid
in the first year is higher than the second and any consecutive year thereafter.
This extra rate is generally paid in the first year in an effort to attract new
policy holders.
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C
Cash Surrender Value - This is the amount that is payable by the insurance
carrier to the policy holder upon surrender of the policy. This amount is the cash
value stated in the policy minus the surrender charge and any outstanding loans.
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D
Direct Response - This term refers to the case when insurance is sold directly
to the person seeking the policy by an insurance company, through its own employees
by mail or over the counter.
Dividend - This is a return of a percentage of the premium payments made
on an insurance policy. These returns reflect the difference between the premium
charged and the combination of actual mortality, expense and investment experience.
Dividends are not taxable income, since they are considered a refund of a portion
of the premium paid.
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E
Evidence of Insurability - This is a document that proves the insurance seeker?s
state of health, finances or job, which helps the insurer decide on the acceptability
of risk for life insurance.
Expense - A policy?s share of the company?s operating costs/fees for medical
examinations and inspection reports, underwriting, printing costs, commissions,
advertising, agency expenses, premium taxes, salaries, rent, etc. Such costs are
important in determining dividends and premium rates.
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F
Face Amount - The amount stated as the ?face amount? of the policy is the
net death benefit payment upon death of holder or maturity of the policy.
Free Look Provision - This is much alike to a ?full refund guarantee? ? a
given length of time between 10 and 30 days, during which the insured is allowed
to examine and return the policy to the carrier for a full refund.
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G
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H
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I
Insurable Interest - An insurable interest is the notion of having a
substantial interest, either through love and affection or through an economic interest
in having the life of the insured continue.
Currenty, at the time of policy issue, it is necessary for the beneficiary to have
an insurable interest in the life of the insured.
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J
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K
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L
Lapse Rate - This is the rate at which life insurance policies terminate
because of failure to pay the premiums.
Life Expectancy - The life expectancy of an individual is the age at which
the probability of survivorship/death becomes 50%. The life expectancy can also
be expressed in other ways using different mortality tables from different medical
underwriters. This is the starting point of calculating the pure cost of life insurance
and annuities and is reflected in the basic premium.
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M
Misstatement of Age - The falsification of the applicant's birth date
on the application for insurance. When discovered, the coverage will be adjusted
to reflect the correct age according to the premium paid in.
Mortality - The probability of death at each attained age; frequency of death.
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N
Non-Forfeiture - One of the choices available if the policy owner discontinues
premium payments on a policy with a cash value. Options available are to take the
cash value in cash or to use it to purchase extended term insurance or reduced paid-up
insurance.
Non-Participating - A life insurance policy in which the company does not
distribute to policy owners any part of its surplus.
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O
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P
Participating Policy - A life insurance policy under which the company agrees
to distribute to policy owners the part of its surplus that its Board of Directors
determines is not needed at the end of the business year. The distribution serves
to reduce the premium the policy owners had paid.
Policy - A policy is a document sating the terms and conditions relevant
to an insurance contract issued to the policy owner by the company.
Policy Proceeds - The actual net amount that is paid on a life insurance
policy upon death of holder or maturity of the policy.
Policy owner - The policy owner is the person, trust or corporation, who
lawfully owns the life insurance policy.
Before a life settlement, the policy owner is the insured individual, but once a
settlement occurs, the policy owner can be any other individual, trust or corporation.
Premium - A premium is a periodic due payment to the insurance company ("carrier"),
where the frequency of payments may be annual, semi-annual, quarterly or monthly.
The premium payments and their amounts are agreed upon before the insurance policy
is put into force, although, they are negotiable at any stage before maturity.
The amount of premium charged reflects the expected loss, expenses and profit contingencies.
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Q
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R
Rating - This is the basis for an additional charge on top of the standard
premium because the person insured is classified as a greater than normal risk usually
resulting from impaired health or hazardous occupation.
Reduced Paid-up Insurance - A form of insurance available as a non-forfeiture
option. It provides for continuation of the original insurance plan, but for a reduced
amount, without further premiums.
Reinstatement - Reinstatement refers to the restoration of a lapsed policy
to its original premium paying status, upon payment by the policy owner, with interest,
of all unpaid premiums and policy loans. The policy owner must also present satisfactory
evidence of insurability by the insured.
Rider - A rider is an endorsement to an insurance policy that modifies clauses
and provisions of the policy, including or excluding coverage. A rider can be an
extended benefit rider, under which the policy holder does not have to pay premiums
beyond a certain age, and will have full continued coverage until a certain age.
Risk Classification - Risk classification is a process that life insurance
companies undertake in order to decide how their premium rates for life insurance
should differ according to the risk characteristics of the individuals insured or
to be insured. This data is usually gathered from a set of previous applicants/policy
holders and applied to a statistical model.
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S
Settlement Options ? These are the ways in which the policy holder or beneficiary
may choose to have policy benefits paid. These options typically include:
- Interest Option - death benefit left on deposit at interest with the insurance
company with earnings paid to the beneficiary annually. Fixed Amount Option - death
benefit paid in a series of fixed amount installments until the proceeds and interest
earned terminate. Fixed Period Option - death benefit left on deposit with the insurance
company with the death benefit plus interest paid out in equal payments for the
period of time selected. Life Income Option - death benefit plus interest paid through
a life annuity. Income continues under a straight life income option for as long
as the beneficiary lives or whether or not the beneficiary lives, under a life income
with period certain option.
Standard Risk - This is a classification of risk that defines the set of
normal average premium rates. Individuals who are classified under ?standard risk?
tend to have physical, occupational and other standards that fit in with the statistical
average that normal premium rates are based on.
Substandard Risk - This is a classification of risk that defines a higher
level of risk since the person applying for life insurance does not meet the requirements
set for the standard risk. An additional premium is charged on substandard risks
to provide for the probability that such a person will have shorter life spam than
a standard risk individual.
Supplementary Contract - An agreement between a life insurance company and
a policy owner or beneficiary in which the company retains at least part of the
cash sum payable under an insurance policy and makes payment in accordance with
the settlement option chosen. This is an agreement between a life insurance company
and a policy owner or beneficiary, which defines the set of rules governing the
cash sum payable under an insurance policy, under which the company retains at least
part of the cash sum payable and makes payment in accordance with the settlement
option chosen.
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T
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U
Underwriter - In the primary life insurance market, this is the person who
reviews the application for insurance and decides the acceptability of the applicant
alongside the premium rates that the applicant should pay.
In the secondary life settlements market, the underwriter is usually a medical underwriter,
who reviews the medical records of an insured and assigns a life expectancy for
the individual.
Underwriting - This is the process carried out by the underwriter. The process
by which the underwriter will decide whether an application for life insurance can
be accepted, and if so, an appropriate set of premium charges must be calculated.
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V
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W
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X
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Y
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Z
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