Glossary of Insurance Related Terms

Absolute assignment

An assignment of a life insurance policy or annuity contract under which the policyowner or annuity contract owner transfers all policy ownership rights to an assignee.

Absolute Beneficiary

A beneficiary that cannot be changed without written consent.

Accelerated Benefits

Benefits available in some life insurance policies before death and usually triggered by long-term, catastrophic or terminal illness.

Accelerated death benefit rider

A supplementary life insurance policy benefit rider that allows a policyowner-insured to receive a specified portion of the policy’s death benefit before the policyowner insured’s death if certain conditions are met.

Accelerated Endowment

A dividend option allowing dividend accumulations to be applied to convert a life insurance policy into an endowment, or to shorten the endowment term. (LI)

Accidental Death Benefit

An extra benefit which generally equals the face of the contract or principal sum, payable in addition to other benefits in the event of death as the result of an accident. A policy provision usually associated with death, which doubles payment of a designated benefit when certain kinds of accidents occur.

Accidental death benefit (ADB) rider

A supplementary life insurance policy benefit rider that provides for an amount of money in addition to the basic death benefit of a life insurance policy. This additional amount is payable only if the insured dies as the result of an accident.

Accidental Death Benefits (ADB)

A provision added to a life insurance policy for payment of an additional benefit in case of death that results from an accident. This provision is often called "double indemnity."

Accidental result provision

A life insurance policy accidental death benefit provision which states that an accidental death benefit will be payable if the insured’s death was the result, directly and independently of all other causes, of accidental bodily injury.

Account Value or Accumulation Value

The accumulated premiums and interest after expense charges, cost of insurance, and charges for any supplemental benefits or riders in Universal life Insurance policies. Used to determine the policy's amount-at-risk in calculating mortality charges. A surrender charge is applied to it to determine the loan and surrender cash value.

Accumulation Value

A term used in Universal Life policies to describe the total of all premiums paid and interest credited to the account before deductions for any expenses, loans or surrenders. (LI)

Accumulations (or Accumulation Benefits)

Percentage additions to policy benefits when the contract is continuously renewed. (LI)

Actual Age

An age calculation based on a person's last birth date (actual age) for premium rate determinations.

Actuarial department

The department in a life and health insurance company responsible for seeing that the company’s operations are conducted on a mathematically sound basis. In conjunction with other departments, it designs and revises a company’s life and health insurance products. The actuarial department calculates premium and dividend rates, determines what a company’s reserve liabilities should be, and establishes nonforfeiture, surrender, and loan values. It also does the research needed to predict mortality and morbidity rates, to establish guidelines for selecting risks, and to determine the profitability of the company’s products.

Actuary

An expert in the mathematics of insurance, annuities, and financial instruments.

AD&D

An extra benefit which generally equals the face of the contract or principal sum, payable in addition to other benefits in the event of death as the result of an accident. A policy provision usually associated with death, which doubles payment of a designated benefit when certain kinds of accidents occur.

Additional term insurance dividend option

A life insurance policy dividend option under which policy dividends are used as a net single premium to purchase one-year term insurance.

Adjustable Life

A form of life insurance which allows changes on the policy face amount, the amount of premium, period of protection, and the length of the premium payment period. This is another term used to describe Universal Life type policies. (LI)

Adjustable Life Insurance

A type of life insurance that allows the policy holder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium and lengthen or shorten the protection period.

Adjustable Premium

The right of an insurer to change the premium rate on classes of insureds, or blocks of business at the time of policy renewal. (LI,H)

Administrative Services Only

The services provided by an insurer, such as providing claim forms and processing claims, when the insurer is not the party funding the loss payments. Plan of insurance where an employer, which has fairly predictable claim costs, pays the claims rather than an insurance company.

Advanced Premium Deposit

Annual premiums paid in advance at a discount. The interest earned on the amount deposited before the premium due date reduces the cost of the premiums.

Adverse Selection

The tendency of persons with higher risk health expectations to apply for or continue insurance coverage to a greater extent than persons with lesser health expectations.

Age Change

The date on which an insured's age changes. In most life insurance contracts this is the date midway between the insured's birthdays. The date of age change depends on whether the insurer uses a age nearest birthday or age last birthday calculation for determining premium rates.

Age Limits

Ages below and above which an insurance company will not accept applications or renew policies.

Age Nearest Birthday

An age calculation based on a person's nearest birth date for premium rate determinations. If the person's birth date is within six months, they are considered the next age.

Agent

A party who is authorized by another party, the principal, to act on the principal’s behalf in contractual dealings with third parties. Called a mandatary in Quebec.

Agent, General

An individual appointed by a Life or Health insurer to administer its business in a given territory. He is responsible for building his own agency and service force and is compensated on a commission basis, although he possibly has some additional expense allowances. (LI,H)

Agent?s statement

The portion of the insurance application in which the agent reports anything he or she knows or suspects about the proposed insured that is not reported by the applicant or proposed insured.

ALC

American Life Convention. A former intercompany Life insurer association, now merged into a new association called the American Council of Life Insurance, Inc. In the United States, an organization which collects and disseminates data on life insurance markets.

Amendment

Document changing the provisions of an insurance contract signed jointly by the insurer and the policyholder.

American College

An educational institution within the Life Insurance business. It confers the Chartered Life Underwriter designation and is concerned with continuing agents' training and with research and publication in areas related to the Life Insurance business. It also sponsors specialty Life Insurance courses and offers a college degree in financial services. It was formerly known as the American College of Life Underwriters (ACLU). (LI)

American Council of Life Insurance (ACLI)

In the United States, an organization which collects and disseminates data on life insurance markets.

American Experience Table of Mortality

A statement of expected mortality rates based upon data accumulated in 1868 from a large number of insured persons. This table was widely used by life insurers until the 1950s to establish rates. (LI)

American Life Convention (ALC)

A former association of Life companies; now part of the American Council of Life Insurance. In the United States, an organization which collects and disseminates data on life insurance markets.

Amount At Risk

The difference between the face amount of a Whole Life Insurance contract and the cash value which it has built up. The net amount at risk declines throughout the life of the contract, while the policy reserve increases along with the cash value. It is the amount the insurer would have to draw from its own funds rather than the policy reserve were the contract to become a death claim. (LI)

Anniversary

The anniversary of the date on which a policy was issued.

Anniversary Date

The annual recurrence of the insurance policy's effective date. Some policy options that may be exercised may be tied to the anniversary date.

Annual Payment Annuity

An annuity which was purchased by the payment of annual premiums for a specified period of time. (LI)

Annual Policy Statement

Individual statements, providing specific policy information and values, which are sent to policyowners on each contract anniversary.

Annual Return

The percentage increase in the value of an investment during a 12-month period or a series of 12-month periods, taking into account compounding of investment dividends or capital gains.

Annually renewable term (ART) insurance

Term life insurance that gives the policyowner the right to renew the coverage at the end of each year. This renewal right continues for a specified number of years or until the insured reaches the age specified in the contract.

Annuitize

To begin a series of payments from an annuity. This term also refers to the settlement of a life insurance policy under the contract's annuity options.

Annuity

A contract sold by a life insurance company that provides fixed or variable payments to an annuitant, either immediately or at a future date.

Antiselection

The tendency of people who believe they have a greater-than-average likelihood of loss to apply for or continue insurance to a greater extent than do other people.

Applicant

The party applying for an insurance policy.

Application

A form that must be completed by an individual or other party who is seeking insurance coverage. This form provides the insurance company with much of the information it will need to decide whether to accept or reject the risk.

Application Supplement

A supplement to the application which documents that the non-guaranteed elements of the contract have been disclosed to the applicant during the sales process.

Approval

Signifies the legal acceptance of forms by a state when policy information is filed; Signifies the insurer's acceptance of risks as set forth in an application for insurance (as originally made or modified by the insurer); or Signifies the acceptance of a request from an applicant or policy holder for new insurance, reinstatement of a terminated policy, a policy loan, or other request.

Approval type temporary insurance agreement

An agreement issued in conjunction with a conditional premium receipt that provides temporary life insurance coverage as of the date the insurer approves the proposed insured as a standard risk.

APS

A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim.

Armstrong Investigation

A study authorized by the New York state legislature in 1905 which reviewed the operations and practices of Life insurers operating in the state. Numerous changes in policy forms and investment practices came from the study and were eventually reflected in other state codes. (LI)

ART

Term life insurance that gives the policyowner the right to renew the coverage at the end of each year. This renewal right continues for a specified number of years or until the insured reaches the age specified in the contract.

ASA

Associate of the Society of Actuaries. An association of actuaries organized in 1948 as the successor to the Actuarial Society of America and the American Institute of Actuaries. It grants the designation Associate of the Society of Actuaries upon completion of five examinations and Fellow of the Society of Actuaries upon the completion of five additional examinations. (LI)

Asset

Any item of economic value owned by an individual or corporation. Usually refers to items that can be sold and converted to cash. Examples are cash, securities, financial accounts, a house, a car, jewelry and other property.

Asset Allocation

The process of dividing investor funds among several classes of investments to coincide with the investor's goals, investment period and tolerance for risk. Investments with the highest potential return often have correspondingly high risk of loss. Conversely, investments offering the lowest risk usually have the lowest returns. By allocating assets among different classes of assets the investor seeks to maximize return while managing the associated risk within the comfort level of the investor.

Asset Share Value

The value of a book of business to an insurer, assuming that the business has been in force long enough to show true mortality rates. This value must be known by the insurer in order to make rates and also in order to sell the business. If assets share values do not grow properly, either the rates have been too low or expenses too high. (LI)

Assignee

The party to whom all or certain contractual rights are transferred under an absolute or collateral assignment.

Assignment

An agreement under which one party the assignor transfers some or all of his ownership rights in a particular property to another party the assignee.

Assignor

The owner of property who transfers certain rights in that property to another party by means of an absolute or collateral assignment.

Association Group Insurance

Technically, group insurance issued to an association rather than to an employer or a union. (LI,H)

Association of Life Insurance Council

An organization of Life company attorneys which seeks to increase knowledge in areas of the law affecting Life Insurance. (LI)

Attained age

The current age of an insured.

Attained age conversion

The conversion of a life insurance policy from one form of insurance to another (such as from term life insurance to whole life insurance) at a premium rate that is based on the age of the insured person at the time of the conversion.

Attending Physician?s Statement (APS)

A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim.

Authorization

Permission from the policy owner or proposed insured which allows release of information to a named party.

Automatic dividend option

For a particular life insurance policy, the dividend option that applies if the policyowner does not choose an option. The most common automatic dividend option is the paid-up additional insurance dividend option.

Automatic nonforfeiture option

For a particular life insurance policy, a specified nonforfeiture benefit that becomes effective automatically when a renewal premium is not paid by the end of the grace period and the policyowner has not elected another nonforfeiture option. The most common automatic nonforfeiture option is the extended term insurance option.

Automatic premium loan (APL)

A life insurance policy provision that allows the insurer to pay an overdue premium on a policy by making a loan against the policy’s cash value.

Automatic Reinsurance

This form of reinsurance, also known as Treaty Reinsurance, is one whereby an insurer must cede that portion of a risk that is above the limit established by contract, and the reinsurer must accept all risks ceded to it. (LI,H)

Aviation Accident Insurance

A form of insurance which protects individuals as passengers or pilots, usually on scheduled aircraft, or which covers the flight travel of the employees of a company under a master policy. (LI)

Aviation exclusion

A life insurance contract provision which specifies that the death benefit is not payable if the insured dies because of certain aviation activities.