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ABSOLUTE ASSIGNMENT:
gives the assignee full (absolute) control over the policy and full rights to its benefitsuntil the insured dies.
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ACCELERATED DEATH BENEFITS PROVISION:
provides that the insurer will accelerate payment of a portion(generally 25% -75%) of the death benefit when the insured reports a qualifying event (e.g., a medical conditionwhich is terminal, requires artificial life support, requires extraordinary medical intervention or will drastically reduce life expectancy without extraordinary medical intervention, or requires institutional confinement for life).The death benefit is reduced by the amount accelerated, and amount of the death benefit not accelerated is then paidupon death of the insured.
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ACCIDENTAL DEATH BENEFIT:
when added to a life policy, this pays an additional amount (the principal sum)if the insured accidentally dies. When the benefit equals the policy face amount, it may be called “doubleindemnity,” since the total amount paid is twice the policy face amount.
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ACCIDENTAL DEATH AND DISMEMBERMENT RIDER:
when added to a life policy, this pays an addedprincipal sum, if the insured accidentally dies, or a capital sum, if the insured suffers an accidental dismemberment.
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ACCUMULATION AT INTEREST OPTION:
the policyowner lets the dividends accumulate, earning interest, untilanother option is selected.
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ACCUMULATION PERIOD:
the period during which the owner of an annuity pays premiums to accumulate thefunds for the eventual annuity payments
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ADJUSTABLE LIFE:
a policy that allows the insured to adjust (increase or decrease) premiums and/or the deathbenefit, upon request. However, premiums are due and payable on a schedule (unlike universal life premiums). See:Whole Life Insurance.
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ADVERSE SELECTION:
the concept that those who expect to die prematurely will want life insurance, while thosewho do not, will not buy life insurance. Underwriting guards against this.
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ANNUAL RENEWABLE TERM:
a one-year term policy which, at the end of each policy year, allows the insured tocontinue the insurance for another year at the premium for his attained age but without evidence of insurability. Itresults in a “step-rate” premium. See: Term Insurance.
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ANNUITANT:
the person designated in an annuity contract to receive annuity payments, either for life or for a certainperiod.
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ANNUITY:
a contract that provides an income at regular intervals for a specified period of time and/or for the life ofone or more persons; or the income from such a contract.
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CASH REFUND ANNUITY:
a refund annuity promises to pay income for the life of the annuitant andguarantees to pay at least an amount to refund the premiums paid for the annuity. A cash refund annuity providesthe annuitant’s beneficiary will be paid the difference between the premiums paid to the insurer and the paymentsreceived by the annuitant prior to death in cash in a lump sum.
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DEFERRED ANNUITY:
an annuity which provides that annuity payments will be deferred (not paid out) for aspecified period or until the annuitant reaches a specified age. May be purchased on a single premium, installmentpremium basis, or flexible premium.
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EQUITY INDEX ANNUITY (EIA):
a fixed annuity with a guaranteed minimum interest rate and a currentinterest rate.
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FIXED ANNUITY:
an annuity that provides for income payments of a guaranteed amount (with principal andinterest guaranteed) during the annuity period.
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FLEXIBLE-PREMIUM ANNUITY:
a deferred annuity paid for over a period of time, with flexible premiums(premiums need not be paid at a specific time or in a specific amount). As a result, benefits cannot be determineduntil after the final premium payment is made.
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IMMEDIATE ANNUITY:
an annuity which provides for the 1st payment to the annuitant immediately (whichmeans, at the end of the one annuity payment interval), e.g., if annuity payments are monthly, the 1st payment is in 1 month.
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INSTALLMENT REFUND ANNUITY:
a refund annuity promises to pay income for the life of the annuitant andguarantees to pay at least an amount to refund the premiums paid for the annuity. An installment refund annuityprovides the annuitant’s beneficiary will be paid the difference between the premiums paid to the insurer and thepayments received by the annuitant prior to death in installment payments of the same amount paid to theannuitant, until paid out.
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JOINT LIFE ANNUITY:
an annuity payable to two or more persons until one dies.
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JOINT & SURVIVOR ANNUITY:
an annuity payable to two or more annuitants until the last survivingannuitant has died.
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LEVEL-PREMIUM (FIXED INSTALLMENT) ANNUITY:
a deferred annuity paid for over a period of timewith fixed premiums (premiums of a specific amount that must be paid at specific times).
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LIFE WITH PERIOD CERTAIN ANNUITY (ANNUITY WITH PERIOD CERTAIN):
an annuity payable forthe longer of a certain period or the annuitant’s life.
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SINGLE-PREMIUM ANNUITY:
an annuity paid for in full with one premium payment. It could be animmediate annuity or a deferred annuity.
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STRAIGHT (PURE) LIFE ANNUITY:
an annuity payable for the life of the annuitant without any guarantee asto a minimum amount or payment period.
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VARIABLE ANNUITY:
an annuity which has annuity payments which will vary in amount based on the value ofa separate account which has been used to make investments.
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ANNUITY PERIOD:
the period during which the annuitant receives annuity payments from the insurer. See: Annuity.
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ASSIGNMENT:
a transfer of policy benefits to another party by the policyholder.
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ABSOLUTE ASSIGNMENT:
gives the assignee full (absolute) control over the policy and full rights to itsbenefits until the insured dies.
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COLLATERAL ASSIGNMENT:
assigns a policy to a creditor as collateral (security for a debt). The creditor can(1) be reimbursed out of the proceeds at the death of the insured for the amount owed (the remainder is paid to thebeneficiary), (2) surrender the policy for its cash surrender value if the policyowner defaults in payments on thedebt, and (3) prevent the policyowner from cashing in the policy or exercising any ownership rights which wouldlessen the security. The policyowner keeps rights that do not affect the use of the policy as collateral, e.g., theright to name or change the beneficiary, take dividends, take disability benefits that do not reduce the amount ofinsurance, etc.
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ASSIGNMENT OF PROCEEDS:
a person insured under a group policy may assign the policy rights to his/herspouse, children and/or parents, or to a trust for the benefit of any or all of them.
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ATTAINED AGE:
one’s current age.
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AUTOMATIC PREMIUM LOAN OPTION:
provides for the insurer to automatically pay any premium unpaid atthe end of the grace period and charge the amount against the policy as a policy loan.
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AVIATION CLAUSE (AVIATION EXCLUSION):
a rider or policy provision which excludes coverage for certaindeaths due to noncommercial aviation.
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BENEFICIARY:
(1) the person to whom proceeds of a life policy are payable when the insured dies; (2) the person towhom refund annuity or period certain annuity payments are made after the death of the annuitant.
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CONTINGENT BENEFICIARY:
an alternate beneficiary named to receive payments (1) if the primarybeneficiary has died before the insured, or (2) under a deferred settlement agreement if the primary beneficiarydies before the policy proceeds have been paid.
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IRREVOCABLE BENEFICIARY:
a beneficiary who cannot be replaced by the policyowner and without whoseconsent the insured does not have the right to surrender or take a loan on the policy.
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PRIMARY BENEFICIARY:
a beneficiary named by the insured to have first priority to receive the policyproceeds.
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REVOCABLE BENEFICIARY:
a beneficiary who has no rights in the policy until the insured dies. Thepolicyowner can replace this beneficiary and can surrender or take a loan on the policy without the consent of thisbeneficiary.
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BLACKOUT PERIOD:
the period of time from when the youngest child is 16 until the surviving spouse turns age60, during which a widow(er) receives no Social Security income.
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BLANKET INSURANCE:
a group insurance policy sold to groups with constantly changing membership. The policyprovides “blanket coverage,” covering any group members, without identifying them or issuing certificates ofinsurance issued to them.
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BUY-SELL AGREEMENT:
an agreement between owners of a business (partners or stockholders) that, when anyone of them dies, that person’s interest will be purchased by the surviving owner(s), often using insurance proceeds.
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BUYER’S GUIDE:
explains how to choose the amount and kind of life insurance to buy and how to compare policycosts. Must be given to all prospective buyers before accepting an initial application, premium or premium deposit.
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CASH DIVIDEND OPTION:
the policyowner receives the dividend in cash. See: Dividend Option.
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CASH REFUND ANNUITY:
a refund annuity promises to pay income for the life of the annuitant and guarantees to pay at least an amount to refund the premiums paid for the annuity. A cash refund annuity provides the annuitant’s beneficiary will be paid the difference between the premiums paid to the insurer and the payments received by the annuitant prior to death in cash, in a lump sum. See: Annuity.
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CASH SURRENDER VALUE:
the policyowner takes the $ upon surrender of the policy to the company. See:Nonforfeiture Options.
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CASH VALUE (CASH SURRENDER VALUE):
the amount of cash the policyowner can get if the policy issurrendered. This results whenever the policyowner has paid more than is needed to buy term insurance at his/hercurrent age. In general, this exists in all policies except decreasing term and most level term policies.
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CERTIFICATE OF INSURANCE:
a document given to an insured group member specifying the beneficiary, theamount of coverage and conversion rights.
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CHANGE OF BENEFICIARY PROVISION:
gives the policyowner the right to change the beneficiary at any time,unless the beneficiary is designated as an irrevocable beneficiary.
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CHANGE OF CONTRACT PROVISION:
allows a policyowner to change the policy form to one with a higherpremium rate (e.g., from whole life to limited pay).
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CHILDREN’S TERM RIDER:
provides convertible term insurance on all children (including adoptees) of theperson insured by the base policy. Coverage automatically applies to children added to the family, with no change inpremiums, and terminates as each child reaches a specified age. See: Term Rider.
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COLLATERAL ASSIGNMENT:
assigns a policy to a creditor as collateral (security for a debt). The creditor can (1)be reimbursed out of the proceeds at the death of the insured for the amount owed (the remainder is paid to thebeneficiary), (2) surrender the policy for its cash surrender value if the policyowner defaults in payments on the debt,and (3) prevent the policyowner from cashing in the policy or exercising any ownership rights which would lessenthe security. The policyowner keeps rights that do not affect the use of the policy as collateral, e.g., the right to nameor change the beneficiary, take dividends, take disability benefits that do not reduce the amount of insurance, etc.See: Assignment.
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COMMON DISASTER CLAUSE (SURVIVORSHIP CLAUSE):
provides that the beneficiary is entitled to policyproceeds only if he outlives the insured for a certain period. If the beneficiary dies within this period, the proceedsare paid to the contingent beneficiary or the insured’s estate.
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CONDITIONAL RECEIPT:
a receipt for the premium that provides coverage is in effect as of the date the initialpremium was paid, if the application is approved (shows a standard risk).
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CONSIDERATION CLAUSE:
states that the consideration for the policy is the statements made by the applicant onthe application and payment of the premium. Sets forth the amount of initial and renewal premiums and thefrequency of future payments.
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CONTINGENT BENEFICIARY:
an alternate beneficiary named to receive payments (1) if the primary beneficiaryhas died before the insured, or (2) under a deferred settlement agreement if the primary beneficiary dies before thepolicy proceeds have been paid. See: Beneficiary.
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CONTRIBUTORY GROUP PLAN:
group insurance where members pay at least a portion of the premium. 75% ofeligible members must participate in such a plan
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CONVERSION PRIVILEGES:
state law requires an individual be given 31 days to buy a conversion policy withoutevidence of insurability after a group policy under which he was covered for five years is terminated for an entireclass.
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CONVERTIBLE TERM:
term insurance that, without proof of insurability, may be converted to a permanent formof insurance, within the period specified in the policy. See: Term Insurance.
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COST-COMPARISON INDEXES:
show the cost of benefits provided, taking into account the time value of money.
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NET PAYMENT COST-COMPARISON INDEX:
shows cost of the policy if it is retained.
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SURRENDER COST-COMPARISON INDEX:
shows the cost if the policy is surrendered.
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COST-OF-LIVING RIDER:
for an increased premium, the policyowner can increase the death benefit of the policyto reflect an increase in the cost of living (based on the Consumer Price Index). See: Term Rider.
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CREDIT LIFE:
term insurance which provides for a loan to be paid off in the event the debtor dies.
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CROSS-PURCHASE PLAN:
a buy-sell agreement under which each owner purchases a life insurance policy on eachof the other owners. Therefore, 10 owners would result in 90 policies (10 owners each with policies insuring theother nine.)
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DECREASING TERM:
term insurance that has a face value that decreases (usually monthly or annually) from thedate the policy takes effect to the date the policy expires. See: Term Insurance.
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DEFERRED ANNUITY:
an annuity which provides that annuity payments will be deferred (not paid out) for aspecified period or until the annuitant reaches a specified age. May be purchased on a single-premium or installmentpremiumbasis. See: Annuity.
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DEFERRED COMPENSATION:
a nonqualified retirement plan that involves a promise by the employer to payadditional or deferred compensation to the employee in the future, such as at retirement, death or disability.
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