Glossary of Insurance Related Terms

Face

The first page of a Life Insurance policy. (LI)

Face amount

In a life insurance policy in which the benefit is not variable, the amount stated as payable at the death of the insured. It is generally shown on the first page of the policy. Also called the face value.

Face page

The first page of an insurance policy. The face page normally includes the insured’s name and age, the name of the policyowner (if different from the insured’s name), the amount of premiums, the policy number, the date on which the policy was issued, and the signatures of the insurance company’s president and secretary.

Facility of Payment

A contractual provision that allows the insurer, under stated conditions, to pay insurance benefits of up to $1,000 to a person or persons other than the insured, the designated beneficiary, or the insured's estate.

Facility-of-Payment Clause

A contract provision found in Industrial Life policies which permits the insurer to pay a portion of the proceeds of the policy to any relative or person who has possession of the policy and who appears equitably entitled to such payment. This provision is designed to facilitate payment when some doubt may exist as to who the beneficiary is and to save legal expenses in the settling of an estate. (LI)

Facultative Reinsurance

An individual reinsurance negotiated and placed individually.

Facultative/Obligatory

A reinsurance term for a contract where the reinsured can select which risks he cedes to the reinsurer, but where the reinsurer is obliged to accept all cessions made.

Fair premium

The premium level that is just sufficient to fund an insurer's expected costs and provide insurance company owners with a fair return on their invested capital.

Family benefit

A life insurance policy rider that provides term insurance coverage on the insured’s spouse and children.

Family Income Policy

Special life insurance policy combining decreasing term and whole life insurance that pays a monthly income of $10 for each $1000 of life insurance if the insured dies within the specified period. The monthly income is paid to the end of the period, at which time the face amount of insurance is paid.

Family insurance policy

A whole life insurance policy that provides term insurance coverage on the insured’s spouse and children.

Family Maintenance Policy

A policy that pays an income to the beneficiary starting after the death of the insured and continuing for a stated period of time. At the end of the income period, the face amount of the policy is paid to the beneficiary. (LI)

Family Policy

A life insurance policy providing coverage on all or several family members in one contract. The primary breadwinner's coverage is typically Whole Life insurance, with the spouse and children, including those born after the policy is issued, insured with small amounts of Term Life insurance.

FEGLI

Federal Employees Group Life Insurance. (LI)

Fellow, Life Management Institute (FLMI)

An organization serving a large proportion of the Life Insurance business by providing educational programs relating to administrative and technical procedures within the industry. It confers the designation of Fellow, Life Management Institute (FLMI) upon those who complete a prescribed course of study. (LI)

Fidelity Bond

Bond that protects an employer against dishonest or fraudulent acts of employees, such as embezzlement, fraud, or theft of money.

Fiduciary

A person who holds something in trust for another.

Fifteen-Year Level Term

A Term Life insurance policy with a level death benefit where the premium remains the same for fifteen years.

Final Expenses

Immediate expenses incurred at the time of a person's death. These include funeral costs, court expenses associated with probating his or her will, current bills or debt, and taxes.

Financed Premium

The payment of insurance premiums with funds borrowed outside the contract itself. (LI)

Financial settlement

A lump sum payment by an insurer to a disabled insured that extinguishes the insurer’s responsibility under the disability contract.

First beneficiary

The party or parties who have first rights to receive the benefits of a life insurance policy following the death of the insured. Also called first beneficiary.

First-to-die life insurance

One insurance policy that covers two lives and that provides for payment of the proceeds at the time of the first insured’s death.

Five-Year Level Term

A Term Life insurance policy with a level death benefit where the premium remains the same for five years.

Fixed amount option

A life insurance settlement option under which the insurer uses the policy proceeds plus interest to pay the beneficiary a sum of money in a series of equal installments for as long as the proceeds plus interest last.

Fixed Annuity

Annuity whose periodic payment is a guaranteed fixed amount.

Fixed Benefit

A benefit, the dollar amount of which does not vary. (LI)

Fixed Expenses

Fixed expenses are those not directly related to a policy (for example: a premium tax or the payment of a commission associated with the sale of a policy). Includes: advertising, accounting, planning, rent, computer facilities, etc. These expenses must be allocated to each "block" of policies sold; the distribution is discretionary and can be critical. Some insurers assume too many (or too few) policies will be sold, thereby reducing (or increasing) the fixed expense factor assumed in the pricing of the policy. This may lead to lower credits or increased policy charges.

Fixed period option

A life insurance settlement option under which the insurer pays the beneficiary the policy proceeds plus interest in a series of equal installments for a specified length of time.

Fixed-Amount Installments

A settlement option under which fixed, periodic benefits payments are made until the principal and interest are exhausted. (LI)

Fixed-Period Installments

A settlement option under which the proceeds are guaranteed to be paid in equal installments for a specified period of time. (LI)

Flat amount formula

A method of determining the retirement benefit for participants in a defined benefit pension plan. A flat amount formula provides the same periodic (e.g., monthly, annual) benefit amount, for example $500 per month, to each retiree.

Flat extra premium method

A method for rating substandard risks used when the extra risk is considered to be constant. The underwriter assesses a specific extra premium for each $l,000 of insurance.

Flat Schedule

A type of schedule in group insurance under which everyone is insured for the same benefits regardless of salary, position, or other circumstances.

Flexible benefit plan

An employee benefit plan that gives each employee several choices as to the types and/or amounts of group benefits.

Flexible Premium Adjustable Life Insurance Policy

This is another term used to describe Universal Life type policies. (LI)

Flexible Premium Policy

A life insurance policy under which the policyholder may vary the amount or timing of premium payments. (LI)

Flexible Premium Policy or Annuity

A life accident policy or annuity under which the policy holder or contract holder may vary the amounts or timing of premium payments.

Flexible Premium Variable Life

A whole life contract and a security which features flexible premium payments, nonguaranteed cash values and either a minimum guaranteed death benefit or no guaranteed death benefit. Policy values are dependent on the performance of a separate account. (LI)

Flexible Premium Variable Life Insurance

A life insurance policy that combines the flexible premium feature of Universal Life insurance with the equity-based benefit feature of Variable Life insurance. Cash values are not guaranteed and the death benefit usually has little or no guarantee. Policy values depend on the performance of a separate account.

Foreign Insurer

An insurer is a foreign company in any state other than the one in which it is incorporated.

Fortuitous Loss

Unforeseen and unexpected loss that occurs as a result of chance.

Franchise Insurance

Insurance under individual contracts issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premiums and remit them to the insurer. The insurer usually agrees to waive its right to discontinue or modify any individual policy, unless its simultaneously discontinues or modifies all other policies in the same group.

Fraternal Insurance

Insurance provided by fraternal orders or societies to their members. Such insurance may be written on an assessment or legal reserve basis

Fraternal Life Insurance

Life insurance provided by fraternal orders or societies to their members.

Fraternal Society

A social organization that provides insurance for its members.

Fraudulent claim

A type of claim that occurs when a claimant intentionally uses false information in an attempt to collect policy proceeds.

Fraudulent misrepresentation

According to common law, a false statement that meets the following three criteria: (1) the party that makes the statement is aware that it is not true or disregards whether it is true; (2) the party that makes the statement does so to induce another party to enter into a contract; (3) the other party does enter into a contract as a result of the statement and suffers a loss because of the contract.

Free examination period

The period of time after delivery of an insurance policy during which the policyowner may review the policy and return it to the company for a full refund of the initial premium. Full coverage is in force during this period. Also called a ten-day free look.

Free Look

A period of time (usually 10, 20 or 30 days) during which a policyholder may examine a newly issued individual policy of life or health insurance, and surrender it in exchange for a full refund of premium if not satisfied for any reason. (LI,H)

Free-Look Period

A provision required in most states whereby policyowners have a period of time – usually, 10, 20 or 30 days, depending on the state – to examine their newly issued policy, and return it for a full refund of premium if not satisfied for any reason.

Fronting Company

A domestic insurance company that provides claims or administrative services to a captive.

Full Preliminary Term Reserve Valuation

A method for determining reserves on Life Insurance contracts, whereby no reserve is required for the first year of a contract's life, with an appropriate adjustment in subsequent years' reserves to make up the difference. This method of valuation makes it possible for an insured to have more funds available for the high first year expenses incurred in the writing of Life Insurance. (LI)

Fully Paid Policy

A limited payment Life Insurance contract on which all required payments have been made. For instance, a 20-Pay Life policy would be fully paid after the insured has paid premiums for 20 years. (LI)

Funeral Expenses

Expenses incurred for a funeral and burial. These can include casket, vault, grave plot, headstone and funeral director.

Future Increase Option

A provision found in some insurance policies that allows the insured to purchase additional disability income insurance at specified future dates regardless of the insured's physical condition.