Glossary of Insurance Related Terms

Lapse

The termination of an insurance policy because a renewal premium is not paid before the end of the grace period.

Lapse Notice

Written notice by an insurer that the policy has lapsed.

Lapse Ratio

Surrenders and lapses as a percentage of average insurance in force for the year.

Lapsed Policy

A policy terminated for non-payment of premiums. The term is sometimes limited to a termination occurring before the policy has a cash or other surrender value.

Last survivor life insurance

Whole life insurance that covers two persons and provides for payment of the proceeds when both insureds have died. It is generally designed to pay estate taxes.

Late-remittance offer

A means of encouraging reinstatement of lapsed insurance policies. A late-remittance offer specifies that the company will accept an overdue premium after the grace period ends and will reinstate the policy without requiring the policyowner to complete a reinstatement application or submit evidence of insurability.

Ledger Cost

The net cost of a Life Insurance contract which is found by subtracting the cash value of the contract at the end of a given year from the premiums paid, less all dividends. (LI)

Legal Reserve Company

A company that maintains policy reserves according to the standards established by the insurance laws of the various states.

Legal Reserve Life Insurance Company

A Life insurer that maintains the reserves required by the jurisdiction within which it operates. (LI)

Level Death Benefit Option

Under Universal Life insurance, the level death benefit option provides the greater of (1) the face amount of the policy at the time of death, or (2) a stipulated percentage of the accumulation value. (LI)

Level Premium

Rating structure under which the premium level remains the same throughout the life of the policy.

Level Premium (Life Insurance)

Life insurance for which the premium remains the same from year to year. The premium is normally more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Level Premium Insurance

That form if insurance for which the premium remains the same throughout the life of the contract. Most Whole Life Insurance is paid for in this way. The amount of a level premium is higher than needed for the protection afforded in the early years of the contract but less than needed for protection in the later years. It is a method of leveling off the cost of insurance so as not to have it increase each year until it becomes inaffordable. The pure mortality cost of a Life Insurance policy from its inception to its maturity date, divided by the number of years the policy is to be in force.

Level premiums

Premiums that remain the same each year that the life insurance policy is in force.

Level term insurance

A type of term insurance that provides a death benefit that remains the same during the term of coverage.

Liability

A financial obligation, debt or claim against a person or institution.

Licensed Insurance Agent

Agents must be licensed by the state(s) where they sell insurance products. Many are trained to assist you in determining your insurance needs for life, health, disability, long term care, auto, and home insurance as well as annuity contracts. Many insurance agents are also registered representatives and are allowed to sell variable life insurance and variable annuity contracts.

Lien Plan

(1) A plan for issuing coverage on substandard risks under which a standard premium is paid but less than the full face amount of the policy is payable if death occurs within a certain period of years. It is rarely used and is even illegal in some states. (2) A plan under which an impairment of the insurer's assets if offset by pro rata liens against policies to be deducted from the face amount when paid as a claim. (LI)

Life Conservation

The administration of efforts to preserve human life through research, legislation, and appeals to society. (LI)

Life Expectancy

The average number of years of life remaining for persons of a given age according to a particular mortality table.

Life Expectancy Term Insurance

A form of Term Life Insurance that provides protection for a person's "expectation of life." This becomes the term of the policy, as opposed to the ordinary Term policies which are for a given number of years or to a stated age, such as 65. (LI)

Life Income

A settlement option under which equal installments are paid as long as the beneficiary lives, even if the principal has been exhausted.

Life income option

A life insurance settlement option under which the insurer uses the policy proceeds and interest to pay the beneficiary a series of equal payments for as long as the beneficiary lives.

Life income option with period certain

A life insurance settlement option in which the insurer guarantees to pay the beneficiary a series of equal payments for a designated period, such as 10 years; thereafter, the payments will continue only as long as the original beneficiary lives. If the original beneficiary dies during the guaranteed period, payments will be made to a recipient designated by the original beneficiary until the end of the guaranteed period, at which time all payments will stop.

Life income option with refund

A type of life income settlement option in which the insurer guarantees that if the beneficiary dies before the total amount paid under the option equals the proceeds of the policy, then the insurer will pay the difference to a contingent payee.

Life insurance

Insurance that provides protection against the economic loss caused by the death of the person insured.

Life Insurance (Generic)

A contractual system of risk sharing under which contributions are accumulated and redistributed to meet the economic consequences of the uncertain duration of life. (LI)

Life Insurance (Narrow)

An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured, or under other circumstances specified in the contract, such as total disability. (LI)

Life Insurance Agency Management Association (LIAMA)

An organization that, through research, seeks solutions to the problems of administering the agency force of a Life insurer. (LI)

Life Insurance Association of America (LIAA)

Formerly an organization that served as the legislative relations arm of a large segment of the Life Insurance business. Now a part of the American Council of Life Insurance. (LI)

Life Insurance in Force

The sum of the face amounts, plus dividend additions, of life insurance polices outstanding at a given time. Additional amounts payable under accidental death or other special provisions are not included.

Life Insurance Marketing and Research Association (LIMRA)

An organization that, through research, seeks solutions to the problems of administering the agency costs of a Life insurer. (LI)

Life Insurance Trust

A type of life insurance policy where a trust company is named as the beneficiary and distributes the proceeds of the policy under the terms of the trust agreement.

Life Insurance, Ordinary

An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured, or under other circumstances specified in the contract, such as total disability. (LI)

Life Insurance, Straight

An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured, or under other circumstances specified in the contract, such as total disability. (LI)

Life Insurance, Whole Life

An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured, or under other circumstances specified in the contract, such as total disability. (LI)

Life Insurers Conference

An organization that provides for exchange of information on management problems among the member insurers. (LI)

Life Office Management Association (LOMA)

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)

Life Paid Up At Age

A form of limited payment Life Insurance that provides protection for the whole of life but with payment of premiums to stop at a particular age, thus paying up the policy. A common form would be Life Paid Up At Age 65. (LI)

Life Underwriter

Usually, a Life Insurance agent. It can be more narrowly defined as a risk appraiser. An employee of a Life insurer who screens the applications submitted. He may accept an applicant, reject him, or propose an alternative policy or premium. (LI)

Life Underwriter Political Action Committee (LUPAC)

A lobbying organization established by the National Association of Life Underwriters. (LI)

Life Underwriting Training Council (LUTC)

An organization that prepares and administers training programs for Life Insurance agents. (LI)

Lifetime Policy

(1) A policy guaranteed renewable or noncancellable to age 65 or some later date. (2) A policy paying disability benefits for life. (LI)

Limit

Maximum amount a policy will pay either overall or under a particular coverage.

Limited Payment Life

A Life Insurance contract providing protection for the whole of life with premiums paid for an indicated number of years. A form of limited payment Life Insurance that provides protection for the whole of life but with payment of premiums to stop at a particular age, thus paying up the policy. A common form would be Life Paid Up At Age 65. (LI)

Limited Policies

(1) Health Insurance contracts, such as those offered by newspapers to their customers, with low limits and somewhat restricted forms. (2) Policies paid only upon the occurrence of certain contingencies, such as cancer, in contrast to policies covering all contingencies other than those excluded. (LI,H)

Limited-Pay Life

A whole life insurance policy where the premiums are paid for a limited period of time such as 20 years or until age 65 rather than for the life of the insured. At the end of the payment period, the policy becomes "paid-up" and guarantees death benefit protection in the face amount for the remainder of the insured's life without further premiums.

Liquidity

The ability of an asset to be converted into cash quickly and without significant loss of value.

Living 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.

Living Benefits

Benefits available to owners of life insurance contracts while the insured is still living. This term may refer to the availability of policy loans and collateral assignments, but it is typically used to refer to advances on policy proceeds taken in the case of terminal illness. Also known as Accelerated Death Benefit.

Living Trust

A trust established during the lifetime of the person creating the trust, rather than under the person's will. Also known as an inter vivos trust.

Loan

Borrowing from the insurer and securing the amount of the loan with the cash value in the life insurance policy. If the insured dies when there is an outstanding loan balance, the amount of the loan and any unpaid interest will be deducted from the proceeds.

Loan (Policy Loan)

A loan made by a life insurance company from its general funds to a policyowner on the security of the cash value of a policy. Generally, loans may reduce the policy's death benefit and cash value.

Loan Value

The amount that can be borrowed from the insurer, using the policy cash value as collateral.

Long Term Care Policy

A plan designed to cover the insured's long-term care (nursing home) costs.

Long-term care (LTC) benefit

An accelerated death benefit provided by some individual life insurance policies under which the insurer agrees to pay a monthly benefit to an insured who requires constant care for a medical condition.

Long-term care (LTC) insurance

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

Long-term disability income insurance

In group insurance, disability income insurance whose maximum benefit period is greater than one year. The maximum benefit period commonly extends to retirement or age 70. In individual insurance, disability income insurance where maximum benefit period is greater than five years, commonly extending to age 65 or for the insured’s lifetime.

LTC benefit

An accelerated death benefit provided by some individual life insurance policies under which the insurer agrees to pay a monthly benefit to an insured who requires constant care for a medical condition.

LTC insurance

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

Lump Sum

A method of settlement whereby the beneficiary receives the entire proceeds of a policy at once rather than in installments.