Glossary of Terms


Absolute Assignment
The transfer of all incidents of ownership (rights) in a life insurance policy to another individual or entity.

Accelerated Death Benefit
With many life insurance policies, if you become terminally ill, you can be eligible to receive a portion of your death benefit while still living to help meet medical and other expenses provided you meet certain criteria.

Accidental Death Benefit (ADB)
This is an optional policy rider that increases the amount of death benefit paid if you die as the result of an accident.

Accumulation Period
With an annuity, the time period between the purchase of the deferred annuity and the onset of the annuities payout period.

Additional Premium
Life insurance premiums, in addition to those used to scheduled, that can be applied directly toward the purchase of additional coverage and/or to increase cash values. Also, additional money added to/deposited into an annuity policy.

Adjustable Life Insurance
A type of life insurance that allows you to change your coverage; raise or lower the face amount, increase or decrease the premium, and lengthen or shorten the protection period.

Adverse Selection
The tendency of persons with poorer-than-average health expectations to apply for or continue insurance coverage to a greater extent than persons with average or better-than-average health expectations.

Age Change
This is the point at which you are considered to be one year older for insurance premium calculation purposes. Your age change is determined based on your last birthday or closest birthday (within 6 months of your date of birth).

This is the agreement between an agent and an insurance company which gives the agent the authority (with limitations spelled out in the agency agreement) to act on the company's behalf. The term also refers to the office with which the agent is affiliated.

An individual or organization representing an insurance company. Your agent is vested with the authority to offer policies for sale, collect premiums and (within the limitations spelled out in the agency agreement), make certain underwriting decisions on behalf of the company. Acts and decisions of your agent are binding on the insurance company only to the extent specified in his or her contract. Your agent cannot bind the company by any statement contrary to the provisions of the application or policy.

A.M. Best Company
One of several independent rating companies that evaluate the financial soundness and claims paying ability of insurance companies. Ratings range from a high of A++ (superior) to F (poor).

This is the date (one year or more) following the date your policy goes into effect.

The person whose lifetime is used as the measuring period to determine how long payments under an annuity policy may be made.

A contract issued by an insurance company that can be used to accumulate money for retirement or to generate a stream of income that is guaranteed for life or for a specific period of time.

Annuity Certain
A contract providing income for a definite and specified period of time, with payment going to a designated beneficiary if the annuitant dies prior to the end of that period.

Annuity, Deferred
A long-term accumulation vehicle sold by a life insurance company that provides benefits for life or a fixed period of time. During the accumulation phase (before benefits are received), values accumulate on a tax-deferred basis.

Annuity, Fixed
An annuity that earns a fixed, guaranteed rate of return on cash values and provides fixed payments during the payout period, regardless of other economic conditions. This contrasts with a variable annuity, which features accumulation or loss based on the performance of investment funds selected by the contract owner.

Annuity, Flexible Premium
A type of fixed or variable deferred annuity allowing flexible premium payments after the initial premium has been paid.

Annuity, Immediate
An annuity that provides periodic income payments and under which the first income payment is sent immediately or shortly after the initial premium is paid.

Annuity, Joint & Survivor
An annuity that provides income payments for as long as either annuitants remains alive.

Annuity, Life
An annuity which is payable for no less than the life of the annuitant, regardless of how long he or she lives.

Annuity, Variable
An annuity which features accumulation or loss based on the performance of investment funds selected by the contract owner. This contrasts with a fixed annuity that earns a fixed, guaranteed rate of return on cash values and provides fixed payments during the payout period, regardless of other economic conditions.

This is a document that, when completed, requests coverage from the insurance company. The insurer reviews the application and, along with other information, determines whether or not to accept the application and issue a policy.

The person who receives certain rights to an insurance policy when the policy is assigned.

A legal transfer of one person's interest in an insurance policy to another person.


The individual or entity designated to receive a life insurance or annuity death benefit upon the death of the insured or the annuitant.

Beneficiary, Contingent
A secondary or alternate beneficiary.

Beneficiary, Irrevocable
A beneficiary whose interest cannot be revoked without that individual's written consent, usually because the policy owner has made the beneficiary designation without retaining the right to revoke or change the designation.

Beneficiary, Primary
Those who, if living, are first entitled to the proceeds.

Beneficiary, Secondary
Those entitled to receive the policy's proceeds if no primary beneficiary is living when the insured dies.

In insurance, an agent who places business with more than one company and who has no exclusive contract with one company.

Business Continuation Insurance
Life or disability coverage intended to help a business remain operational in the event of the death or disability of an owner.

Buy-Sell Agreement
In business, a legally binding agreement, generally between several owners or an owner and a key employee, which provides that, if an owner dies, his or her business interest will be purchased by the designated survivor(s). Life insurance is often used to make sure that the money is available to purchase the business interest at the owner's death.


Cafeteria Plan
A type of employee benefit arrangement that allows employees to pick and choose the benefits they want from an array of offerings (as one selects foods when going through a cafeteria line). This contrasts with employee benefit plans in which every employee receives the same benefits, regardless of individual needs or situations.

Another name for an insurance company, which "carries" the risk loss.

Cash Refund Annuity
Any type of annuity which guarantees that, should the annuitant die prior to receiving payments equal to the premiums paid to establish the annuity, the difference will be refunded to the named beneficiary in a lump sum. New York Life and its subsidiaries continues payments until the total amount paid out equals the premium paid, called "Life with Guaranteed Total Amount."

Cash Value
In a cash value (also called "permanent") life insurance policy, this is the money that can accumulate in the policy. This money usually accumulates on a tax-deferred basis. As the policyowner, you can access the available cash value at any time and for any purpose. Some people borrow cash values for down payment on a home, to help pay college bills, or to provide supplemental income in retirement. Note that borrowed cash values will reduce the death benefit of your policy or otherwise negatively impact overall policy values.

Cash Value Policy
A "permanent" life insurance policy that offers the potential for cash value accumulation and life-long protection provided premiums are paid. This contrasts with term life insurance, which does not accumulate cash value and generally expires at the end of the term without value. For an annuity, this means the current gross value of the policy.

Certificate of Insurance
If you are covered under a group insurance plan, your certificate summarizes the benefits and principal provisions of the master policy.

Change of Beneficiary Provision
A life insurance policy provision allowing you to change the beneficiary whenever desired (unless the beneficiary has been designated as irrevocable). It is recommended that you review your policy beneficiary designations periodically to make sure they reflect your current situation and wishes.

Chartered Financial Consultant (ChFC)
A professional designation (achieved by passing a series of examinations) demonstrating the successful completion of financial courses involving insurance, investments, taxation, accounting, estate planning, and more. The ChFC designation indicates a knowledge of financial planning, as well as the features, benefits and uses of various insurance and financial products.

Chartered Life Underwriter (CLU)
A professional designation (achieved by passing a series of examinations) demonstrating knowledge of life insurance products and their potential uses to meet business, estate planning, retirement planning, and other objectives.

Class (Classification)
A class is a group of insureds having similar characteristics and exposure to a peril, and who are eligible for comparable insurance rates. For example, non-smokers as a group generally pay lower rates for life insurance than do tobacco users.

Collateral Assignment
The legal transfer of one person's interest in a policy to a creditor as security for a debt. Under a collateral assignment, the creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.

Commercial Lines
Insurance for businesses and commercial establishments.

In insurance, a percentage of the premium paid to an agent or broker by the insurer as compensation.

Conditional Temporary Receipt
In life insurance, evidence of temporary coverage if you pay the initial premium at the time your application is taken; and meet the conditions spelled out in the receipt. This gives the applicant temporary coverage during the period when the insurer is processing the application.

In insurance, this refers to the right of the insurance company to question or challenge the accuracy of information provided by the applicant. This right is not unconditional, but expires after two years (known as the contestable period) in most cases, after which the policy cannot be contested.

Contestable Period
The period of time (generally up to two years after date of issue) during which the insurer has the legal right to contest the validity of a life insurance policy because of misleading or incomplete information furnished by the applicant. This is a safety feature for beneficiaries, since it places the burden of discovering misleading or false information to the insurance company. Once the contestable period expires, even if erroneous information is later discovered, the company is generally required to pay policy proceeds to the beneficiary at the insured's death.

Contingent Beneficiary
A secondary or alternate beneficiary.

In insurance, this is another name for the policy. With the completed and signed application attached, the issued life insurance or annuity policy forms a legally binding contractual agreement between the insurance company and the policyowner.

Conversion Privilege
A provision that allows the policyowner, before expiration of a term policy, to elect to have a new permanent policy issued that will continue the insurance coverage, without needing to provide evidence of insurability. Conversion may be effected at attained age (premiums based on the age attained at time of the conversion) or at the original age (premium based on age at time of original issue). If original age is selected, the policyowner must pay the difference in premiums between the old and the new policies and any interest due for the time and the old policy has been in force. The conversion privilege also generally is included in group insurance. It permits employees of company's whose group policies who are terminated for any reason to convert their certificates to permanent insurance at their attained ages.

Cross Purchase Agreement
In business, an agreement that specifies the terms and conditions for the surviving co-owner(s) to buy a deceased's interest in the business. Life insurance on the owners is often used to provide the funds to purchase the share from the deceased owner's estate. An insured cross purchase agreement helps assure that the business is transferred successfully to the surviving owners and that the deceased owner's beneficiaries receive a fair price for their interest.


Death Benefit
Life insurance policy proceeds payable to the beneficiary upon proof of the insured's death. Also available in some annuities.

Declined Risk
An underwriting term meaning an applicant is determined to be uninsurable under the insurance company's guidelines. (See also "Preferred risk," "Standard" and "Rated.")

Decreasing Term Insurance
A term life insurance policy with a level premium and a death benefit that decreases over time. Decreasing term insurance is sometimes used as mortgage cancellation insurance, with the death benefit reducing as the principal amount of the mortgage declines over the term of the mortgage.

Deferred Compensation
In business, an arrangement whereby present salary or future raises are not taken currently, but are postponed until some future date, such as at retirement. Life insurance can be used to fund the plan, which pays retirement benefits to the employee and/or a death benefit to the employee's beneficiaries.

Defined Benefit Plan
A retirement plan which provides a fixed or specific benefit to the employee at retirement. The benefit is often based on a percentage of income and years of service.

Defined Contribution Plan
A retirement plan which provides for a specific dollar amount or percentage of income to be contributed to the plan. The actual benefit received by employees is not guaranteed, but depends on the contributions and their returns.

A portion of the company's surplus that is distributed to the owners of participating policies. Dividends are not taxable (unless, if taken in cash, total dividends exceed all premiums paid). Dividends can be taken in cash, used to reduce the premium, left to accumulate at interest, or used to purchase paid-up additional insurance. Dividends are not guaranteed.

Dividend (Paid Up) Additions
A life insurance policy dividend option whereby dividends are used to purchase additional, fully paid-up life insurance within a policy. This increases the face amount and the potential for increases in cash value in the policy.

Dollar Cost Averaging
Dollar Cost Averaging is an investing methodology that employs a consistent disciplined approach to investing. With Dollar Cost Averaging, a person sets up a regularly scheduled program of investing a specific amount over time. The strategy can reduce an investor's timing risk. Be aware, however, it does not assure a profit nor protect against loss in declining markets. Since it involves continuous investment regardless of fluctuating price levels, investors should consider their ability to continue purchases through periods of low price levels.

Double Indemnity
This term, no longer in common usage, refers to an accidental death benefit, which may pay a multiple (often double) of the stated death benefit if death results from an accident.


An amendment to a life insurance or annuity policy, which alters the provisions of the initial contract.

With a life insurance policy, that point when the policy's guaranteed cash value equals the initial death benefit. At that time, the policy is said to mature or endow and the policyowner may receive the full face amount, often in cash. With whole life policies, policies often endow at age 100.

Entity Purchase Agreement
In business transfer plans, a buy-sell agreement whereby the business, rather than an individual owner, assumes the obligation to purchase a deceased or disabled owner's interest in the business. Additionally, the business entity also purchases (and is the beneficiary of) any life insurance used to fund the plan.

As a principle of insurance, equity refers to fair and impartial treatment, a standard of fairness applied in establishing premiums, dividends, and policy values. It is based on the premise that all insureds with similar characteristics will be categorized under the same underwriting classification, pay the same premium, and receive the same dividends and policy values. Additionally, in connection with a policy's cash values and policy loan indebtedness, the policyowner's equity is the portion of cash value remaining to the policyowner after deduction of all indebtedness from loans or liens secured by the policy.

The assets owned by an individual at the time of his death.

Estate Planning
A process addressing the orderly handling, administration and distribution of your estate upon your death. Depending on the size of your estate and your objectives, estate planning may involve estate creation and conservation for heirs; the limiting of estate shrinkage; and the creation of adequate liquidity to pay estate settlement costs (including probate, debt repayment and estate taxes). Life insurance can be used to help provide money to meet estate planning objectives.

Estate Settlement
The process of distributing a deceased's estate, first paying all existing debts and taxes and transferring the remainder to one's heirs.

Estate Shrinkage
The amount by which the value of an estate can be depleted during the estate settlement process due to probate costs, estate taxes and other expenses.

Estate Transfer
The process of distributing the assets of an estate, either during an individual's lifetime or after death.

Evidence of Insurability
Proof that you are insurable. Such evidence is generally obtained through statements on your application regarding your health, avocations and financial condition. In most cases, a medical examination is required.

A policy provision indicating a circumstance or event, such as an act of war, that would cause the benefit to be denied.

Exclusion Ratio
The exclusion ratio is the ratio of the total investment in the contract (normally the gross premium cost) to the total expected return under the contract. If the annuity is a life annuity with a refund or period-certain guarantee, a special adjustment must be made to the investment in the contract. The exclusion ratio is applied to each annuity payment to find the portion of the payment that is excludable from gross income. If the annuity starting date is after December 31, 1986, the exclusion ratio is applied to the payments received until the investment in the contract is fully recovered; thereafter, any payments received are fully includable in income.

That person or entity appointed to carry out or "execute" the provisions of a will. The executor has a number of responsibilities and bears a degree of legal liability.


Face Amount
The initial death benefit payable on your life insurance policy, as indicated on the face page. Note that this is not necessarily the same as the actual death benefit payable. The death benefit may be higher if dividends were used to purchase additional coverage; it can be lower if loans against the policy were taken and were not re-paid.

An individual or entity holding the funds or property of another in a position of trust. An example of a person having a fiduciary responsibility is an executor of an estate.

Field Representative/Underwriter
Field representative and field underwriter were other terms used to describe insurance agent. Note that an agent has underwriting responsibilities to the company in terms of reporting information accurately and completely to the home office for underwriting consideration.

Final Expenses
These are costs associated with one's death that must be settled prior to distribution of that person's estate. Final expenses may include funeral and burial costs, existing debts, taxes and other outstanding expenses.

First-Year Premium
This is the life insurance premium falling due during the first year the policy is in force. Premiums paid in subsequent years are known as renewal premiums. In an annuity, first year premiums are any payments used to initially purchase the policy or that are paid during the first year.

Fixed Amount Option
A life insurance proceeds settlement option whereby the amount of monthly payment is set or fixed by the policyowner. The number of payments is determined by the amount of proceeds. (An example would be electing to receive $1,000 a month for as long as the proceeds last.)

Fixed Annuity
An annuity that earns a fixed, guaranteed rate of return on cash values and provides fixed payments during the payout period, regardless of other economic conditions. This contrasts with a variable annuity, which features accumulation or loss based on the performance of investment funds selected by the contract owner.

Fixed Period Option
A life insurance proceeds settlement option whereby the number of payments is fixed by the policyowner. The amount of each payment is determined by the amount of proceeds. (An example would be electing to receive benefits for a specified period of time, such as ten years; the amount of each payment is then based on the amount of principal and projected earnings.)

Flexible Premium Adjustable Life
(See "Universal Life Insurance.")

Flexible Premium Annuity
A type of deferred annuity allowing flexible premium payments after the initial premium has been paid.

Flexible Premium Policy
A life insurance policy in which the policyowner has the option to pay more or less than the scheduled premium. Such policies include variable universal life and universal life insurance. This contrasts with whole life, whereby the premium is fixed at the time of policy issue. Note that, with flexible-premium policies, there may be a risk that the policy may consume its own policy values and eventually terminate without value if premiums being paid are lower than the scheduled premium or if loans or withdrawals are made.

Front Load
The practice of deducting sales and marketing expenses from a premium or contribution before crediting the remainder to the investment or policy.


Grace Period
The time between an insurance policy's premium due date and the date the policy will lapse if the premium remains unpaid. Typically, grace periods are 30 or 31 days, and no interest is charged on premiums paid during that time. A grace period protects insureds and their beneficiaries from having the policy terminate inadvertently.

A person to whom property is transferred.

Grantor One who transfers property. Gross Estate
An individual's accumulated wealth and property (net premium plus expenses) at the time of his or her death.

Gross Premium
This is the premium paid by the policyowner.

Group Insurance
Insurance issued under a master contract offering coverage to a pre-selected group (such as employees of a company or members of an association). Coverage is offered to all qualified members of the group on a class basis, regardless of individual considerations or insurability.

Group Life Insurance
Life insurance usually offered without medical examination on a group of people through a master policy.

Guaranteed Cash Value
Insurance coverage for which there is no individual underwriting, i.e., no medical underwriting.

Guaranteed Death Benefit (Annuity)
For variable annuity contracts, a provision which provides that, should the annuitant or owner die before benefits begin, the beneficiary will receive no less than the amount originally invested (regardless of investment experience) or the actual value of the contract, if greater. In some annuities, the guaranteed amount is periodically increased.

Guaranteed Death Benefit (Life Insurance)
This is the minimum death benefit that will be paid. The death benefit is guaranteed in a whole life policy. With variable life and other non-traditional products, provisions are often available to provide limited death benefit guarantees.

Guaranteed Insurability Rider
An option, that the insured pays for, offered in some life insurance policies that allows the insured to purchase additional insurance at specified future dates without the need to provide evidence of insurability.

Guaranteed Issue
In group insurance, this is the maximum amount of insurance that will be issued without the need to provide evidence of insurability. If the group is acceptable, the insurance company dispenses with individual underwriting (For example, a whole life policy may offer a guaranteed amount of $10,000 for applicants under age 35.) The guaranteed issue feature reduces policy issuing costs and premiums.

Guaranteed Renewable
A provision included with some term life insurance policies that allows the insured to renew the coverage at the end of the term, generally at the insured's attained-age premium rate.


Health Insurance
A broad-based term referring to insurance that provides benefits to help pay expenses associated with covered injuries or illnesses. The concept includes all types of loss-of-time and medical expense coverage, such as accident insurance, disability insurance, and medical expense insurance.

Any person who has a right to receive all or a portion of the estate of a decedent.

Home Office
Generally, the corporate headquarters of an insurance company, where the primary offices of the company are located.


A document used to show a life insurance policy's guaranteed and (non-guaranteed) future values, including cash values and death benefits, based on certain assumptions. An illustration is an example of how the policy could perform in a given set of circumstances. It can provide you with valuable information about a policy's potential. However, it is neither an estimate or guarantee of future results and should not be construed as a prediction of policy performance.

Immediate Annuity
An annuity that provides for the first payment to the annuitant to begin at the first premium payment interval (which may be the next month, quarter, etc.). This can be contrasted with a deferred annuity, whereby benefits are to begin at a future date.

Impaired Risk
In life insurance underwriting, an impaired risk is an individual who has an unfavorable health condition or history or other factor that makes him or her an above-average risk for coverage. This person may be asked to pay a higher premium, accept a reduced amount of coverage or be declined altogether for insurance.

Incidents of Ownership
In life insurance, the right to exercise any of the privileges of policy ownership, including the right to change beneficiaries, withdraw cash values, take policy loans, make assignment, etc.) Incidents of ownership can be major estate planning factors for policyowners who wish to transfer policy ownership from themselves to another person or a trust, thereby removing the policies from their estates. If any incidents of ownership remain with the original owner, policy proceeds may be included in the person's estate at death.

Income (Salary) Continuation
A business concept which allows a retired employee (or owner-employee) to continue receiving income for a period of time after retiring or leaving the company. Many income continuation agreements include a provision to pay a death benefit so that, in the event of the employee's premature death, a beneficiary will receive continued benefits or a lump sum payment. Life insurance can be used to help provide the benefit.

Income-Earning Ability
This is your ability to generate an income; it can be a factor in helping determine the amount of life insurance you need.

Incontestable Clause
A policy provision stating that the insurer cannot challenge the validity of your policy after it has been in force for a certain period of time, generally two years. (See also "Contestable" and "Contestable Period.")

To compensate for loss. In life insurance, the insurer agrees to pay the beneficiaries a specified sum (death benefit) to indemnify them for the financial loss resulting from the death of the insured.

Individual Insurance
Coverage purchased on an individual basis, rather than group coverage.

Existing insurance policies.

The independent checking on facts about an insurance applicant.

Inspection Report
A summary statement about an insurance applicant's occupation, health, residence, manner of living and general financial status, provided by an independent investigating agency.

The circumstances under which an insurance company can issue a policy on an applicant for insurance.

Insurable Interest
The principle requiring that no policy will be issued unless the policy owner and beneficiaries would be in a position to suffer a financial loss at the death of the insured. For example, an insurable interest can be based on personal relationship (one spouse is always presumed to have an insurable interest in the other) or business relationship (as in one partner on the life of another or a lender on the life of the borrower).

A legal contract between you and the insurer that transfers a specified covered risk to the insurer in exchange for a premium (also known as consideration). The details of coverage are specified within the policy itself.

The person whose life is covered by the insurance contract and upon whose death a claim will be paid.

The insurance company.

Interest-Sensitive Life Insurance
Life insurance in which the cash values can be affected by changes in interest rates.

Dying without a will. Your will helps you enable you to dispose of your estate pretty much as you see fit. However, if you die intestate, your estate will be distributed according to the intestacy laws of your state.

Irrevocable Beneficiary
A beneficiary designation that cannot be changed without the consent of the beneficiary. This is sometimes used in business insurance or divorce situations.

Irrevocable Trust
A trust that cannot be changed or canceled by the grantor. An irrevocable trust can be used for estate planning purposes.

In insurance, the company's decision to accept the application and "issue" the policy.


Joint and Survivor Annuity
An annuity that provides income payments for as long as either of two annuitants remains alive.

Joint Life Insurance
A policy that insures two or more lives and provides for the payment of the proceeds upon the event of the first to die. Also called first to die insurance.

Juvenile Insurance
Cash value life insurance written on children (typically 0 to 18 years of age). Eventually, ownership of the policies is gifted to the insured child at a certain age. Such policies are attractive as legacies for parents and grandparents since premiums are generally low (and with some policies, will remain at that low level for life), the insured's future insurability can be protected through guaranteed purchase options, and the policy can accumulate cash value that can be used by the insured to help pay future expenses (such as college tuition or down payment on a first home) or left to accumulate.


Keogh (HR 10) Plan
A type of qualified retirement account for self-employed men and women. First established in 1962 to provide self-employeds with tax-deferred retirement plans, Keogh Plans are now one of several small business retirement plan options. (See also "SIMPLE Plans" and "SEP Plans.")

Key Executive/Person Insurance
Life insurance purchased by a business on a valuable employee (or owner-employee) to indemnify the business against the potential financial loss that would result in the event of that individual's death.


Historically, the termination of an insurance policy due to non-payment of premium by the end of the grace period. At that point, the policy will either terminate without value or fall under one of the non-forfeiture options (reduced paid-up coverage, extended term coverage, etc.). With variable and interest-sensitive life insurance policies, lapse may result when there is inadequate cash value in the policy to pay the next mortality and expense charge.

Legal Reserve
The amount an insurance company must keep available to meet future claims and obligations.

Level Premium
A premium which remains unchanged throughout the life or term of the policy. With a whole life policy, the premium remains level for the insured's life. With level term insurance, the premium remains level for the life of the term; it may increase at each renewal, or the start of a new term.

Level Term Insurance
Term life insurance on which the face value remains unchanged from the date the policy goes into force to the date the policy expires.

Liability Insurance
Coverage to meet expenses resulting from legal, financial obligations to others. For example, if you are sued because you are found to have caused an injury to another person (such as if your dog bites the paper boy) and the incident is covered under your homeowners' policy, the insurance company will assume the responsibility of paying legal fees and costs that result according to the terms and limits of the policy.

Life Expectancy
The average number of years of life remaining for a group of persons of a given age.

Life Income
A pension, annuity or life insurance payment option that guarantees the recipient an income for life.

Life Insurance
A financial tool indemnifying against the loss of a particular person (the insured). A policy under which the insurance company promises to pay a death benefit upon the death of the person insured.

Life Insurance Trust
A trust established for the purpose of distributing life insurance proceeds and, in many cases, to remove those proceeds from the insureds' estate, thereby reducing estate taxes.

Lifetime Transfers
The term often used to describe the process of transferring assets from one person (the donor) to another (the donee) during the donor's lifetime, generally to reduce estate tax consequences on the donor's estate. Sometimes also referred to as a "Living Gift."

Life Underwriter
An insurance agent.

Living Benefits
These are benefits available to owners of life insurance policies while the insured is still alive. Living benefits include policy loans, the right to make collateral assignments, and, in some cases, the right to take benefits in the event of the insured's terminal illness.

Living Benefits Rider
With some life insurance policies, this rider enables insureds to receive a specified portion of the policy's death benefit before the policyowner insured's death if certain conditions are met.

Living Gift
(See "Lifetime Transfers.")

Living Trust
A trust created to take effect during the lifetime of the grantor. It is sometimes called an inter vivos trust.

In insurance, the amount added to net premiums to cover the company's operating expenses and contingencies.

In life insurance, money loaned at interest by the insurance company to a cash value life insurance policyowner, using the policy's cash value as security for the loan. Policy loans will effect the death benefit.

Long-Term Care
Broad-based care (which may include custodial, rehabilitative, home-health or nursing home care) for the chronically ill or disabled.

Long-Term Care Insurance
Coverage that provides medical and other services to insureds who need constant care in their own home or in a nursing home.

Loss-of-Income Benefits
Benefit paid because the insured is disabled and unable to work.

Lump Sum
In general, the receiving of annuity, pension or life insurance death benefits in a single payment.


Material Fact
In insurance, vital information required for making an underwriting decision. It involves information that is so important that misrepresentation or concealment would alter an underwriting decision. Examples of material facts include a person's age, the existence of a serious health condition (such as the presence of cancer or a past heart attack) or a dangerous vocation, such as hang-gliding.

Material Misrepresentation
This is a false or incomplete statement or concealment of the truth by an insurance applicant or proposed insured on the application that might cause the insurance company to issue coverage where, if the truth were revealed, the application might be declined or rated.

(See "Endow.")

Maturity Date
In life insurance, the date upon which the policy endows for its full face value.

Medical Examination
Sometimes required as part of the underwriting process, this is the physical examination of an applicant by a qualified medical professional to determine the applicant's insurability. The finding of this exam become part of the application and, in turn, part of the policy when issued.

Medical Information Bureau
Founded in 1902, the MIB is a fraud protection bureau that serves as a medical information clearing house supported by more than 600 member insurance companies, which share information about applicants. All information is coded to assure confidentiality, and access is strictly limited. Information is used to protect against the omission of significant underwriting information by applicants. Reports do not include information regarding whether or not an application is accepted or declined.

In insurance, a false, incorrect or incomplete statement of a material fact, made on the application. (See also "Material Misrepresentation.")

Mode (of Payment)
The frequency and method by which premiums are paid. Standard premium modes are annually, semi-annually, quarterly, monthly and automatic payment (deduction from checking or savings account).

Modified Endowment Contract)
Also known as MECs, these are life insurance policies that are considered to be investments by the Internal Revenue Service because the ratio of cash value to death benefit is higher than in typical life insurance policies. As a result, unlike with non-MEC policies, policy loans and surrenders of cash value are generally taxable as income. Additionally, distributions prior to age 59 1/2 are subject to a 10% surcharge tax on any gains. Death benefits, however, are received by beneficiaries income tax-free, the same as non-MEC policies.

Modified Premium Policy
A life insurance policy issued with a built in premium change (either an increase or decrease) in a future year.

Monthly Deductions
With a variable or universal life insurance policy, these are the charges deducted from the cash value to meet mortality and expense costs, as well as premiums for riders and supplementary benefits.

A general term referring to frequency of sickness. As an underwriting concept, it refers to the potential loss of health for a specific population, generally by age.

Morbidity Rate
The ratio of the incidence of sickness to the number of well persons in a given group of persons over a given period of time.

The relative incidence of death in proportion to a specific population.

Mortality Charge
The cost of insurance protection in a life insurance policy for a given period of time. In a variable universal life insurance policy, for instance, the mortality charge is deducted from the cash value each month.

Mortality Experience
The rate at which persons insured by a specific company (or under a given policy) have died or are assumed to die.

Mutual Insurance Company
An insurance company which has no capital stock or stockholders, but is instead owned by its policyowners. One key feature of mutual companies is that earnings above those necessary for the operation of the company may be returned to the policyowners in the form of policy dividends.

Mutual Fund
An investment consisting of pooled money from investors which is then invested in a variety of securities (generally stocks, bonds and money market securities) to reflect its particular investment objectives.


Natural Death
Death by means other than accident, murder or suicide.

Net Cost
The total, out-of-pocket cost of owning a life insurance policy. There are different methods of calculating this. A simplified method of calculating it is to reduce the total premium paid by dividends returned, and then subtract the cash value from that figure. (Example: If you paid a total of $10,000 in premiums, had $1,200 returned in policy dividends and had accumulated a cash value of $2,000, your net cost for the policy would be $6,800.) This simplified method does not account for the time value of money.

Net Premium
In insurance, the total premium minus dividends.

Net Worth
The value of a business or an individual. It is calculated by subtracting total liabilities from total assets.

Non-Admitted Company
An insurance company not licensed to do business in a particular state.

An insurance policy which the insured has the right to continue in force (by the timely payment of premiums as set forth in the contract) for a specified period of time. During that time, the insurance company cannot alter or cancel the policy.

In business, a type of employee benefit plan or insurance coverage in which the employer pays the full cost for all eligible employees. The employees do not contribute.

A term life insurance policy that cannot be converted to a permanent policy.

Nonforfeitable Benefit
In pension plans, a vested benefit that belongs, unconditionally, to the participant.

Nonforfeiture Values
Cash values in a life insurance policy to which the policyowner has a right, even if he or she elects to stop paying premiums. These can be taken under one of three possible nonforfeiture options: (1) surrender for full cash value; (2) use of the cash value to purchase reduced paid-up life insurance; and (3) use of the cash value to purchase extended term insurance in the full face amount of the original policy for as long as the cash value will pay net premiums.

A life insurance policy which is not eligible for dividend distributions from the company's surplus. (Literally, the policy does not "participate" in the dividends).

Non-Qualified Plan
A retirement plan that does not qualify for the federal tax advantages received by qualified plans, but which, in turn, is subject to fewer restrictions regarding participants and contribution limits.


Optional Benefit
A rider or additional provision you can add to your life insurance policy on an elective basis usually by paying an additional premium. Examples include Waiver of Premium and Accidental Death Benefit riders.

Ordinary Life Insurance
Also known as whole life and straight life insurance, the type of life insurance that continues during the whole of the insured's life as long as premiums are paid. It features a fixed level premium, fixed death benefit and a fixed, guaranteed rate of cash value accumulation. Ordinary life, along with term life, is one of the original types of life insurance, and is still very much in use today.

Original Age Term Conversion
With some term policies that can be converted to permanent coverage, the company agrees to set the premium rate for the permanent coverage at the original age of the insured. As part of the conversion, the policyowner then pays all back premiums to present. The advantage is that future premiums are at the lower-age rate, which will be less than if the conversion took place at the insured's attained age.


Paid-Up Additions
Amounts of life insurance purchased by policy dividends and added to the original life insurance policy to increase the death benefit and cash values. These additions do not require the further payment of premiums. With variable life insurance, paid-up additions can also be purchased by making additional premium payments.

Paid-Up Insurance
Life insurance on which no further premiums are required, yet the policy will remain in force for life (unless the policy is terminated by the policyowner).

articipating Insurance
A life insurance policy whose owners are eligible to share in the distribution of dividends paid out of the surplus of the company.

The person or entity paying the premiums on a life insurance policy.

Payor Benefit/Clause
In life insurance, an optional policy provision (generally used on juvenile insurance policies) whereby, should the payor die before a certain time (such as the insured's 21st birthday), future premiums are waived until that date.

Payroll Deduction
A convenient method of purchasing insurance and other benefits through work by having premiums deducted by the employer and forwarded to the insurance company.

Per Capita
Literally, "by the person." Referring to life insurance beneficiary designations, per capita means designated individuals only share in the proceeds on an individual basis. Example: There are four named beneficiaries, with each to receive one-quarter of the proceeds. If one dies, each of the survivors receives one-third. This approach to naming beneficiaries has the advantage of being specific and clear. However, it can also accidentally remove intended beneficiaries. For instance, if three sons, all with families, are named beneficiaries on a per capita basis, and one dies, the deceased son's family receives no proceeds. (See also "per stirpes.")

Permanent Life Insurance
A term used to describe various life insurance policies in force throughout an insured's lifetime provided premiums are paid. It also generally refers to insurance that accumulates cash value. Examples of permanent life insurance are whole life, universal life or variable universal life.

Personal Insurance
In life insurance, coverage purchased to meet individual and family needs, rather than for business purposes.

Per Stirpes
Literally, "by the branch." Referring to life insurance beneficiary designations, per stirpes means life insurance policy proceeds are to be distributed as indicated among the named beneficiaries. If one beneficiary dies, that person's share then goes to the living descendants of that individual. This approach to naming beneficiaries has the advantage of not inadvertently disinheriting family members. However, it can accidentally include unintended beneficiaries if the intended beneficiary dies. (See also "per capita.")

In insurance, the written document or contractual agreement between the insurer and the policyowner, including all endorsements and riders. Also known as the "contract" or insurance policy.

Policy Anniversary
In insurance, the anniversary of the date the policy was issued.

Policy Assignment
A legal transfer of one person's interest in an insurance policy to another person.

Policy Date
The date on which coverage goes into effect.

Policy Dividend
(See "Dividend.")

Policy Fee
In traditional (non-variable) life insurance, a flat, one-time charge, included in the premium, to help cover the one-time costs involved in issuing a policy. With variable policies, periodic charges assessed against accounts to cover costs.

Another term for "policyowner," the individual or entity having ownership of the policy, along with all policyowner rights.

Policy Loan
(See "Loan.")

Policy Period
This is the term during which your policy is in force. With a term life insurance policy, for example, the policy period has a starting and ending date, such as from midnight on September 12, 2000 to midnight on September 11, 2010. Many term policies can be renewed prior to expiration by paying the renewal premium. Also sometimes called "policy term."

Policy Reserves
The funds that an insurer sets aside specifically for the purpose of meeting its policy obligations, including the payment of proceeds in the future.

Policy Term
(See "policy period.")

A characteristic of group insurance in which the employee or group member can continue the insurance coverage even if he or she terminates employment or leaves the group. The coverage is said to be portable.

Preferred Risk
In life insurance, a person whose physical condition, occupation, personal habits and hobbies and other characteristics indicate the potential for strong longevity. If you are a preferred risk, you may be eligible for a lower premium than a person who is a standard or rated risk.

In insurance, the periodic payment required to keep a specific policy in force. Your cost of insurance.

Premium Mode
(See "Mode.")

Premium Loan
In life insurance, a loan taken from the policy's cash value to pay the premium due. Many policies also have an "automatic premium loan", provision that is activated to pay overdue premium.

Premium Rate
The price per unit or per thousand dollars of coverage for insurance.

Premium Tax
A state tax collected from an insurance company as a percentage of premiums paid.

Present Value
An amount which, if invested at a certain rate of interest, will accumulate to a specified sum at a future date.

Primary Beneficiary
The person or entity who, at the insured's death, has the first right to receive life insurance proceeds. If the primary beneficiary is deceased, proceeds are paid to the secondary beneficiary.

Principal Sum
In insurance, the lump sum payable for accidental loss of life, dismemberment, or loss of sight.

A court-supervised process of validating a will or establishing distribution of assets of a decedent.

In life insurance, the net amount of money payable by the company at the insured's death or at the maturity of the policy. It is sometimes referred to as the death benefit.

Profit-Sharing Plan
A form of qualified, employer-sponsored retirement plan under which a portion of the profits are set aside for distribution to the employees. In many cases, the employees make tax-deductible distributions, which may be matched by the company.

Proposed Insured
The person named in a life insurance application as the individual whose life is to be insured.

For investment products (including variable life insurance and variable annuity products), this is a formal written document which explains fees, features, portfolio investment objectives and other details. You must be given a copy of the prospectus before purchasing mutual funds, variable life, and variable annuity products and you should read it carefully before you invest or send money.

A term or condition of an insurance policy as contained in the policy clauses.

P.S. 58 Tables
Federal government premium rate tables for one-year term insurance policies. When life insurance is provided as an employee benefit, these tables are used to determine the value of the economic benefit provided by the insurance.

Pure Endowment
A life insurance contract that provides payment only upon survival of the insured to a certain date and not in the event of that person's prior death.


Qualified Plan
A business or self-employment retirement plan that meets certain federal requirements and therefore enjoys special tax advantages, including the deductibility of contributions.


Rate, Premium
The cost of a stated unit of insurance, generally given in terms of price per thousand dollars of coverage (such as $1.25 per $1,000).

Rated (up)
An underwriting term used to describe a policy or applicant considered to be a higher-than-average risk. (See also "Preferred Risk," "Standard" and "Declined.")

The giving of any valuable consideration (cash, commissions, sports tickets, etc.) to a prospective owner as an inducement to buy life insurance. Rebating by an insurance agent is illegal in most states.

A written acknowledgement of a payment or delivery of a document. In insurance, receipts are required as proof that initial premiums have been paid, your policy has been delivered or that you have received other important documents (buyer's guide, prospectus, etc.)

Reduced Paid-Up Insurance
A non-forfeiture option (when the policyowner elects to stop paying premiums) that uses the policy's accumulated cash values to continue the original insurance policy, but for a reduced face amount, with no further premiums required.

Registered Representative
A person who has passed an FINRA examination, and is authorized to discuss and present securities products, including mutual funds, variable life insurance and variable annuities. A registered representative receives commissions on sales of securities products.

The resumption of coverage under a policy that has lapsed. This is a policyowner right that allows you to restore a lapsed policy within a specified period of time by providing evidence of insurability and paying back premiums, plus interest. The policy cannot have been surrendered for its cash value.

To continue a term policy for another period of time.

Renewable Term Insurance
Term life insurance under which the policyowner has the right, at the end of the term, to continue the coverage for another term at the premium for his or her attained age, without the need to submit evidence of continued insurability.