Understanding the terms in a annuity or any insurance
policy can often be confusing. We've tried to define as many of
those difficult terms for you in our glossary below.
Just click on the beginning letter of the word you would like
defined.
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A
B
C
D
E
F
I
K
L
M
N
O
P
R
S
T
U
W
A
Accidental Death Benefit
An extra death benefit amount that is paid out in addition to
the face amount of the policy if the insured dies as the result
of an accident.
Accelerated Death Benefit Option
In the event of terminal illness, usually l year or less, the
insured has the option to withdraw some of the death benefit for
his personal use.
Accumulation phase
The period when an annuity owner can add money and accumulate
assets tax-deferred.
Accumulation unit value (AUV)
An annuity's subaccount price per share during the accumulation
phase. It's the net asset value after income and capital gains
have been included and subaccount management expenses have been
subtracted.
Annual insurance fee
This covers mortality and expense (M & E) risk charges and
other administrative expenses. It also provides for a guaranteed
death benefit and for lifetime guaranteed income payouts.
Annual policy fee
This covers the costs of maintaining and administering an account
during the accumulation phase. It is often waived, however, when
an account's value reaches a certain level (which is stated in
the contract).
Annual subaccount fee
A fee deducted for fund operating costs, management fees, and
other asset-based costs incurred by the fund. This charge is assessed
at the subaccount level and is not deducted from policy values.
Annuitant
The person, usually the annuity owner, whose life expectancy is
used to calculate the income payment amount on the annuity.
Annuity owner
The person or people who make decisions about an annuity's investments.
The owner or owners have the rights to make withdrawals, surrender
or change the designated beneficiary or other terms of the contract.
Anticipated initial investment
The amount of money you want to invest at the beginning. Most
companies have certain minimum initial investment amounts.
Assets under management
All the financial assets under the management of a company, including
stocks, bonds, mortgage loans, real estate, investments, policy
loans and cash.
Assignment
The transfer of the ownership rights of a Life Insurance policy
from one person to another.
Aviation Hazard
The extra hazard of death or injury resulting from participation
in aeronautics. This generally will require paying extra premium
or the waiving of certain benefits of coverage.
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B
Backdating
A procedure for making the effective date of a policy earlier
than the application date. Backdating is often used to make the
age at issue lower than it actually was in order to get lower
premium.
Balance inquiry
An online function that lets you check the performance and balance
of the subaccounts in your annuity.
Beneficiary
The person designated to receive the death benefit when the insured
dies.
Beta (3 year)
This is a number, expressed in a percentage, that reflects the
volatility of the subaccount relative to the overall market (usually
the S&P 500). A Beta above 1 percent is usually more volatile
than the overall market.
Business Insurance
Policies written for business purposes, such as key employee,
buy-sell, business loan protection, etc.
Buy-Sell Agreement
An agreement among owners in a business which states the under
certain conditions, his heirs are legally obligated to sell their
interest to the remaining owners, and the remaining owners are
legally obligated to buy at a price fixed in the Buy-Sell agreement.
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C
Children's Term Insurance Rider
Provides term insurance to the insured's dependents. It is a flat
premium for all his dependents and the benefit usually is not
less than $1,000 or more than $10,000.
Collateral Assignment
Assign all or part of a life insurance policy as security for
a loan. If the insured dies the creditor would receive only the
amount due on the loan.
Contestable Clause
A provision in an insurance policy setting forth the conditions
under which the insurer may contest or void the policy. After
that time has lapsed, normally two years, the policy cannot be
contested.
Contingent Beneficiary
A person or persons named to receive policy benefits if the primary
beneficiary is deceased at the time the benefits become payable.
Convertible (conversion)
A policy that may be changed to another form by contractual provision
and without evidence of insurability. Most term policies are convertible
into permanent insurance.
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D
Decreasing Term A form of life insurance that provides
a death benefit, which declines throughout the term of the contract,
reaching zero at the end of the term.
Double Indemnity Payment of twice the basic benefit in
the event of loss resulting from specified causes or under specified
circumstances.
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E
Entity Agreement
A buy-sell agreement in which the company agrees to purchase the
interest of a deceased or disabled partner.
Equity investment style
An annuity subaccount's investment style (the blend of investment
types in the annuity).
Evidence of Insurability
The statement of information needed for the underwriting of an
insurance policy.
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F
Face Amount
The amount of insurance provided by the terms of an insurance
contract, usually found on the face of the policy. In a life insurance
policy, the death benefit.
Fixed Benefit
A benefit, the dollar amount of which does not vary
Five-year annualized total return
This percentage figure reflects a subaccount's total return (gain
or loss) averaged over 5 years.
Front-end load fee
A one-time fee insurance companies charge to defray the costs
of establishing new accounts.
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I
Incontestable Clause
A clause in a policy providing that a policy has been in effect
for a given length of time (two or three years), the insurer shall
not be able to contest the statements contained in the application.
Insurability
Acceptability to the insurer of an application for insurance.
Insurable Interest
You have an insurable interest in the insured if upon the death
of the insured you would suffer financial loss.
Insurance Policy
The printed form, which serves as the contract between an insurer
and an insured.
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K
Key Person (Key Man) Insurance
Insurance on the life of a key employee whose death would cause
the employer financial loss. The policy is owned and payable to
the employer.
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L
Lapsed Policy
A Insurance policy, which has been allowed to expire because of
nonpayment of premiums. RETURN TO INDEX
Level Term Insurance
A type of term policy where the face value remains the same from
the effective date until the expiration date. However, after the
level premium period most policies turn into Annual Renewable
Term where the premiums increase annually.
Life Insurance
An agreement that guarantees the payment of a stated amount of
monetary benefits upon the death of the insured.
Long Term Care Insurance
An insurance policy that provide benefits for the chronically
ill or disabled over a long period of time.
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M
Medical Information Bureau (MIB)
A data service that stores coded information on the health histories
of persons who have applied for insurance from subscribing companies
in the past. Most Life insurers subscribe to this bureau to get
more complete underwriting information.
Mortality Cost
The first factor considered in life insurance premium rates. Insurers
have an idea of the probability that any person will die at any
particular age; this is the information shown on a mortality table.
Mortality Table
A table showing the incidence of death at specified ages.
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N
Nonmedical (Non-Med)
A contract of life insurance underwritten on the basis of an insured's
statement of his health with no medical examination required.
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O
Occupational Hazard
A condition in an occupation that increases the peril of accident,
sickness, or death. It usually will mean higher premiums.
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P
Payout phase or payout period
The period during which the money accumulated in an annuity is
paid out as regular income payments.
Permanent Life Insurance
A term loosely applied to Life Insurance policy forms other than
Group and Term, usually Cash Value Life Insurance, such as Whole
Life Insurance or Universal Life.
Policy Fee
There are two calculations to determine the premium for term insurance.
The Policy Fee, which is a flat fee added to each policy and the
rate per thousand times the number of thousands of death benefit.
The policy fee is usually the same for all ages and amounts.
Preferred Risk
Any risk considered to be better than the standard risk on which
the premium rate was calculated.
Previous month-end AUV
A dollar amount that reflects the previous month's accumulated
unit value price.
Primary Beneficiary
The beneficiary named as first in line to receive proceeds or
benefits from a policy when they become due.
Provisions
Statements contained in an insurance policy, which explain the
benefits, conditions and other features of the insurance contract.
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R
Rated
Coverage issued at a higher rate than standard because of some
health condition, or impairment of the insured.
Renewable Term
Term insurance that may be renewed for another term without evidence
of insurability. Level term usually turns into renewable term
with increasing premiums after the level premium period.
Replacement
A new policy written to take the place of one currently in force.
Revocable Beneficiary
The beneficiary in a life insurance policy in which the owner
reserves the right to revoke or change the beneficiary. Most policies
are written with a revocable beneficiary.
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S
Standard Risk
A risk that is on a par with those on which the rate has been
based in the areas of health, physical condition, and morals.
An average risk, not subject to rate loading or restrictions because
of health.
Stock Purchase Agreement
A formal buy-sell agreement whereby each stockholder is bound
by the agreement to purchase the shares of a deceased stockholder
and the heirs are obligated to sell. This agreement is usually
funded with life insurance.
Stock Redemption Agreement
A formal buy-sell agreement whereby the corporation is bound by
the agreement to purchase the shares of a deceased stockholder
and the heirs are obliged to sell. This agreement is usually funded
with life insurance.
Subaccounts
The various investment portfolios in which your annuity funds
are invested. You choose which subaccounts you want your money
invested in and how much you want to allocate to each.
Subaccount investment objective
Identifies a subaccount's investment type (for example, aggressive
growth, balanced, money market or corporate bond).
Subaccount net assets
The assets of a subaccount expressed in millions of dollars.
Surrender charges
The charge for withdrawing money from an annuity before the date
agreed upon in the contract. Surrender charges typically are a
percentage of the total premium deposited, and the charge decreases
to 0 over time as the annuity gets closer to the date it will
mature.
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T
Term certain annuity
An annuity with income payments over a set number of years.
Term Insurance
The type of life insurance that provides protection for a specified
period of time. It usually has no real cash build up.
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U
Underwriter
A technician trained in evaluating risks and determining rates
and coverage for them. When an application is submitted to the
insurer, it is the underwriter who gathers all the necessary information
to determine whether a person is a preferred risk, a standard
risk, or rated.
Universal Life
An interest sensitive life insurance policy that builds cash values.
The premium payer has control on how the policy is structured.
He has the flexibility to vanish the premiums (pay no more premiums
based on assumptions that are not guaranteed) or have the premiums
continue for life. It is a matter of juggling 3 variables. The
assumed interest rate, the cash value and the premium payment
plan.
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W
Waiver of Premium
A provision of a life insurance policy, which continues the coverage
without further premium payments if the insured becomes totally
disabled.
Whole Life Insurance
Life insurance that is kept in force for a person's whole life
as long as the scheduled premiums are maintained. All Whole Life
policies build up cash values. Most Whole Life policies are guaranteed
as long as the scheduled premiums are maintained. The variable
in a whole life policy is the dividend, which could vary depending
on how well the insurance is doing. Policyholders can use the
cash from dividends in many ways. The three main uses are: It
can be used to lower or vanish premiums, it can be used to purchase
more insurance or it can be used to pay for term insurance.
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