Glossary of Insurance Terms
Following is a dictionary of
words and phrases specific to the field of life insurance. These will be useful
as a handy guide. Since the explanations are concise and the statements general,
they are not, of course, to be regarded or used as technically complete
statements or legal definitions.
- The person appointed by court to manage and settle the estate of a
deceased person usually because the deceased person left no will.
- One to whom an annuity is payable, or a person upon the continuance of whose
life further payment depends.
- A periodic income payable during the lifetime of one or more persons, or for a
- A form supplied by a life insurance company, usually filled in by the agent
and medical examiner (if applicable) on the basis of information received from
the applicant. The form is signed by the applicant and is part of the insurance
contract if a policy is issued. This form gives information to the Home Office
Underwriting Department so it may consider whether a life insurance policy will
be issued and if so, in what classification and at what premium rate.
Age - By ordinary insurance definition, a person 25 years, 6
months and 1 day old generally is considered to have attained the age of 26.
Premium Loan Option - An option which will automatically pay any
premium which is in default at the end of the grace period and charge the amount
so paid against the policy as a policy loan, provided such premium is not in
excess of the policy's cash surrender value on the due date of the premium
(computed on the assumption that such premium had been paid).
- The person to whom the proceeds of a life insurance contract are payable at
the death of the insured.
Receipt - The receipt for the first payment of the first premium
which assures the applicant that, if he or she dies before receiving the policy,
the company will pay the full claim if the policy is issued or would be issued
as applied for upon receipt of the application.
Refund Annuity - An annuity which provides that upon the death of
the annuitant before payments totaling the purchase price have been made, the
excess of the amount paid by the purchaser over the total annuity payments
received will be paid in one sum to designated beneficiaries.
Value - The amount available to the owner when a policy is
surrendered to the company. During the early policy years, the cash value equals
the policy reserve less a "surrender charge"; in the later policy
years, the cash value usually equals or closely approximates the reserve value
at time of surrender. A schedule of the cash value per $1,000 (or unit) at the
end of various representative policy years is generally included in the
- The written contract between a fraternal benefit society and the member
purchasing the insurance, stating the terms and full details of the agreement.
Beneficiary - An alternate beneficiary designated to receive
payment usually in the event that the original beneficiary has dies before the
- The chief requirements for the formation of a valid contract are (1) parties
having legal capacity to contract, (2) mutual assent of the parties to a
promise, or set of promised, generally consisting of an offer made by one party
and an acceptance thereof by the other, (3) a valuable consideration, (4) the
absence of any statute or other rule making the contract void, and (5) the
absence of fraud or misrepresentation by either party. A life insurance policy
meeting these requirements qualifies as a contract.
Term - Some term contracts provide that they may be converted to
permanent forms of insurance without medical examination if the conversions are
made within a limited period as specified in the contracts. The conversion may
be made as of the attained age of the insured at the time of conversion.
- A form of misrepresentation. Many state laws provide penalties for verbal or
printed circulation of materials calculated to injure any life insurance
company's business or reputation, or for the abetting of such acts.
Annuity - An annuity contract which provides for the postponement
of the commencement of an annuity until after a specified period or until the
annuitant attains a specified age. Deferred annuities may be purchased either on
the single premium or annual premium basis. Deferred annuities are also known as
- A dividend on participating life insurance contracts is a refund of that part
of the premium paid at the beginning of the year which still remains after the
company has set aside the necessary reserve and made deductions for claims and
expenses. The dividend may also include a share of the company's investment,
mortality, and operating profits.
Additions - Participating policies provide that policy dividends
may be used as single premiums at the insured's attained age to purchase paid-up
insurance as additions to the amount of insurance specified on the face of the
Society or Company - A society or company within the state in
which it is chartered and in which its home office is located.
Fund - One of the basic uses for life insurance. A reserve death
benefit fund provided by the insured to protect their families against sudden
large, unbudgetable expenses such as accidents, operations, etc. The increasing
loan values of life insurance policies also constitute, and often are referred
to as, emergency funds for the insured while they are living.
Term Insurance - The nonforfeiture option which provides that the
cash surrender value of a policy may be used as a net single premium at the
attained age of the insured to purchase term insurance for the face amount of
the policy, less indebtedness, for as long a period as possible, but not longer
than the term of the original policy. It is now the usual practice for companies
to deduct any policy indebtedness from the cash surrender value and then to use
the net equity to purchase term insurance for the full amount of the policy
including dividend additions, less indebtedness, for the maximum period
possible, but not exceeding the term of the original policy.
Premium - The amount charged in addition to the regular rate to
cover an extra hazard to special risk.
Amount - Since the amount of insurance protection provided under
a given policy is usually stated on the face or first page of the contract, the
term "face amount" is commonly used when referring to the principal
sum involved in the contract. The actual amount payable by the company may be
decreased by loans or increased by additional benefits or interest payable under
specified conditions, or stated in a rider.
- A person who occupies a position of special trust and confidence, e.g., in
handling or supervising the affairs or funds of another, involving the exercise
of confidence and trust.
Annuity - The traditional annuity which guarantees the periodic
payment of a specified amount of income per installment for life or other
Insurance - Insurance protection provided by fraternal benefit
societies, organized without capital stock and not for profit, and maintaining a
lodge system. Practically all fraternals operate on a level rate and legal
reserve basis in accordance with special fraternal insurance regulation, and
under supervision of the state insurance authorities. They are subject to
periodical examinations. Rate payments often are collected by the financial
secretaries of the local lodges. The distinguishing feature of fraternal
insurance in contrast to old-line insurance is the "open contract'.
Period - Most life insurance contracts provide that premiums may
be paid at any time within a period varying from 28 to 31 days following the
premium due date, the policy remaining in full force in the mean time. If death
occurs during the grace period, the premium is deducted from the proceeds
payable. As a general rule, no interest is charged on overdue premiums if paid
during the grace period.
Annuity - An annuity contract which provides for the first
payment of the annuity at the end of the first interval of payment after
purchase. The interval may be monthly, quarterly, semiannual, or annual.
Interest - The interest arising when a beneficiary of a policy
has a reasonable expectation of benefiting from the continuance of the insured's
life, or of suffering a loss at the insured's death. Policies obtained by one
person on the life of another without insurable interest are not enforceable
since they are considered contrary to public policy.
Insurance - Life insurance policies written on the lives of
children within specified age limits, generally under parental control.
Reserve - Policy reserves maintained according to the standard
established by the insurance laws of the various states.
Rate or Premium - A premium which remains the same from year to
year throughout the premium-paying period of a policy, and yet makes possible,
by means of an accumulating reserve, the payment of all death claims as they
occur in a given group.
- An insurance company's liabilities consist of its immediate or contingent
policy obligations, unpaid claims, funds left under settlement options, assigned
surplus, the miscellaneous debts.
- Certification, issued by a state department of insurance, that an individual
is qualified to solicit insurance applications for the period covered. Usually
issued for a period of one year, renewable on application without necessity of
the individual's periodic repetition of the original qualifying requirements.
Each agent should study carefully the licensing laws and regulations of his/her
Annuity - An annuity which is payable during the continued life
of the annuitant. No provision is made for the guaranteed return of the unused
portion of the premium.
Expectancy - The average duration of the life remaining to a
number of persons of a given age, according to a given mortality table.
Insurance - Insurance in which the risk insured against is the
death of a particular person called the insured, upon whose death within a
stated term, or whenever death occurs if the contract so provides, the insurance
company agrees to pay a stated sum or income to the beneficiary.
Insurance Company - An organization chartered by a state for the
purpose of furnishing life insurance protecting and annuities.
Value - A determinable amount which can be borrowed from the
issuing company by the policy owner using the value of the policy as collateral.
In the event the policy matures by death or as an endowment with the debt either
partially or fully unpaid, then the amount borrowed plus any accrued interest is
deducted from the face amount.
- A false statement as to a past or present material fact, made in an
application for insurance, and that induces an insurer to issue a policy it
would not otherwise have issued. Also, an agent who misrepresents a policy's
terms, dividends, etc., may be guilty of a misdemeanor, and is subject to such
penalty as may be prescribed by state law.
Table - The instrument by means of which are measured the
probabilities of life and death. A mortality table, based on large groups of
people covering a long period of time, shows death rates, compiled for all ages.
Options - This term refers to privileges allowed under terms of
the contract after cash values have been created. Four privileges exist: (1)
surrender for full cash value; (2) loans up to full amount of cash value; (3)
Paid-up policy for amount of insurance which cash value, as a single premium,
will buy at new rates; (4) term insurance for full face amount of original
policy for as long a period as cash value will last to pay necessary premiums.
Insurance - Life insurance issued on a regular basis without
requiring the applicant to submit to a regular medical examination. In passing
on the risk, the company relies on the applicant's own answers to questions
regarding applicant's physical condition and on personal references or
Policies - Policies which bear a relatively low guaranteed
premium, on which no refunds or dividends are paid.
Life - Whole Life - Straight Life - These three terms are
synonymous and are applied to the type of policy which continues during the
whole of the insured's life and provides for the payment of amount insured at
the insured's death, or usually on the basis of age 100 on the CSO Table, if the
insured still is living at that age.
- A policy on which no future payments are to be made, and under which the
company is held liable for the benefits provided under the terms of the
Additions - Additional insurance purchased by policy dividends on
a net single premium basis at the insured's attained insurance age at time
additions are purchased.
Policies - Policies which share in the distribution of
"dividends" out of the surplus earnings of the company.
- The name given by the commercial companies to the written contract of
insurance corresponding to the fraternal benefit certificate of a fraternal
Mortem Dividend - A dividend allotted after the death of the
- The term used for the rate charged for a given form of insurance policy or
annuity contract at a given age, or the amount payable to the company for the
benefits provided under a certain contract.
Notice - Notice of premium due, sent out by the company or one of
its agencies, to an insured.
- The net amount of money payable by the company at the death of an insured or
at the maturity of a policy.
- A term used to describe insurance issued to a person, who is a substandard
risk, at a premium rate which is higher than that charged for a standard risk.
- The granting of any form of inducement, favor, or advantage to the purchaser
of a policy not available to all under the standard policy terms. Rebating in
some states is a penal offense for which both the agent and the person accepting
the rebate can be punished by fine or imprisonment, and with the agent also
subject to revocation of license.
Paid-Up Insurance - One of the nonforfeiture options contained in
most life insurance policies provides that the insured may elect to have the
cash surrender value of the policy used to purchase a paid-up policy for a
proportionate amount of insurance.
Annuity - A contract which provides for the continuance of an
annuity during the lifetime of the annuitant, but an any event until total
payments equal to the purchase price have been made by the company.
- By the terms of most life insurance policies, the policyowner has the right to
reinstate a lapsed policy within a reasonable time after lapse by furnishing
satisfactory evidence of insurability. The right is usually denied if the policy
has been surrendered for its cash value.
Term - Some term contracts provide that they may be renewed on
the same plan for one or more years without a medical examination but with rates
based on the attained age of the insured.
- On the level premium plan, the reserve represents the combined funds held by
the company for all policies which, together with future premiums and interest
earnings, are sufficient to meet all future claims.
- A special policy provision, added to the standard contract, which expands or
limits the standard benefits thereof (e.g., Double Indemnity, Waiver of Premium,
family Income, etc…).
Premium - The lump sum required to cover the entire cost of a
life insurance or annuity contract.
Risk - A person who, according to a company's underwriting
standards, is entitled to insurance protection without extra rating or special
Risk - A person who is considered an under-average or impaired
insurance risk because of his or her physical condition, family or personal
history of disease, occupation, residence in unhealthy climate, or dangerous
Insurance - Insurance protection during a limited number of years
but expiring without value if the insured survives the stated period. The
protection period may be one or more years but ordinarily is five to 20 years
since such periods usually cover the needs for temporary protection.