INSURANCE DEFINITIONS

gives the assignee full (absolute) control over the policy and full rights to its benefitsuntil the insured dies. See: Assignment.

 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 drasticallyreduce 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.

 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.

 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.

the policyowner lets the dividends accumulate, earning interest, untilanother option is selected. See: Dividend Option

 the period during which the owner of an annuity pays premiums to accumulate thefunds for the eventual annuity payments.

 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.

 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.

 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.

the person designated in an annuity contract to receive annuity payments, either for life or for a certainperiod.

 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.

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.

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.

a fixed annuity with a guaranteed minimum interest rate and a currentinterest rate.

 an annuity that provides for income payments of a guaranteed amount (with principal andinterest guaranteed) during the annuity period.

 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.

 an annuity which provides for the first payment to the annuitant immediately (whichmeans, at the end of the one annuity payment interval), e.g., if annuity payments are monthly, the first payment isin one month.

 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.

 an annuity payable to two or more persons until one dies.

an annuity payable to two or more annuitants until the last survivingannuitant has died.

 a deferred annuity paid for over a period of timewith fixed premiums (premiums of a specific amount that must be paid at specific times).

an annuity payable forthe longer of a certain period or the annuitant’s life.

 an annuity paid for in full with one premium payment. It could be animmediate annuity or a deferred annuity.

 an annuity payable for the life of the annuitant without any guarantee asto a minimum amount or payment period.

 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.

 the period during which the annuitant receives annuity payments from the insurer. See: Annuity.

a transfer of policy benefits to another party by the policyholder.

 gives the assignee full (absolute) control over the policy and full rights to itsbenefits until the insured dies.

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.

 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.

 one’s current age.

 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.

 a rider or policy provision which excludes coverage for certaindeaths due to noncommercial aviation

(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.

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.

 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.

 a beneficiary named by the insured to have first priority to receive the policyproceeds.

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.

 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.

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.

 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.

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.

the policyowner receives the dividend in cash. See: Dividend Option.

a refund annuity promises to pay income for the life of the annuitant and guarantees topay at least an amount to refund the premiums paid for the annuity. A cash refund annuity provides the annuitant’sbeneficiary will be paid the difference between the premiums paid to the insurer and the payments received by theannuitant prior to death in cash, in a lump sum. See: Annuity.

the policyowner takes the cash upon surrender of the policy to the company. See:Nonforfeiture Options.

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.

a document given to an insured group member specifying the beneficiary, theamount of coverage and conversion rights.

gives the policyowner the right to change the beneficiary at any time,unless the beneficiary is designated as an irrevocable beneficiary.

 allows a policyowner to change the policy form to one with a higherpremium rate (e.g., from whole life to limited pay).

 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.

 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.

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.

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).

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.

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.

group insurance where members pay at least a portion of the premium. 75% ofeligible members must participate in such a plan.

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.

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.

show the cost of benefits provided, taking into account the time value of money.

shows cost of the policy if it is retained.

shows the cost if the policy is surrendered.

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.

term insurance which provides for a loan to be paid off in the event the debtor dies.

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.)

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.

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.

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.

the use of life insurance to fund deferred compensation plans.Insurance is on the employee’s life, so if the employee dies before receiving the deferred compensation, the proceedscan be used to pay the employee’s heirs, and if the employee lives to retirement, the cash value can help fund thecompensation to the employee.

a qualified retirement plan in which the employee’s benefit upon retirement is defined,or pre-determined, e.g. 50% of salary or $3,000 per month, etc.

a qualified retirement plan in which the annual contribution to the plan isdefined, e.g. 3% of salary or dollar-for-dollar matching, etc.

a clause in a cash value policy which lets the insurer delay in granting a loan or delay in payingthe cash value on surrender of the policy for up to six months.

a rider which guarantees regular monthly income (based on the amount of lifeinsurance) to the insured while he is totally and permanently disabled.

a refund of part of the premium provided for in a participating life insurance policy. It results whenmortality experience, interest earnings and/or insurer expenses are more favorable than projected in the premiumrates.

choices of use of dividends offered to a policyholder.

the policyowner receives the dividend in cash.

the policyowner lets the dividends accumulate, earning interest,until another option is selected.

this dividend is used to buy one-year term insurance.

dividends are used to buy additional paid-up insurance (paid-up additions) ofthe same type as the original policy.

this option applies the dividend to the next premium, sothat the next premium payment is reduced.

a whole life policy with term insuranceequal to (double protection) or twice (triple protection) the policy face amount added for a specified period.

groups eligible for group life insurance are groups of employees, labor unions, publicemployee associations, trustee groups established by employers, groups of producers, associations, financialinstitutions, credit unions, and creditors.

a policy that has the same features as a whole life policy, except it will mature at an age or time lessthan age 100, e.g., 20-year endowment, or endowment to age 65. It will pay the face amount to the policyowner asan endowment, if the insured is still living at maturity, or as a death benefit to the beneficiary, if the insured diesprior to policy maturity.

states that the policy, attachments, and the application (if attached), contain allprovisions and constitute the entire contract. Verbal agreements or promises by the producer are not binding on theinsurer unless they are in the contract and signed by the proper officers of the insurer.

a buy-sell agreement under which the business entity (the partnership or corporation) purchases alife insurance on each of the owners. Therefore, if there were 10 owners, the company would have one policy foreach (a total of 10 policies).

the difference between the guaranteed interest rate and the current interest rate creditedto a cash value account.

all IRA contributions in excess of IRA limits are subject to a penalty of 6%if not withdrawn by the tax-filing deadline each year. See: IRA.

this is the option automatically applied if no other selection is made. It providesfor the cash value (less any loan) to be used as a net single premium to buy term insurance with the same deathbenefit as the original policy. The amount of the cash value determines how long the term is extended. See:Nonforfeiture Options.

a federal law designed to protect the privacy of consumer report informationand guarantee that information supplied by credit reporting agencies is as accurate as possible. Gives the consumercertain rights, such as correcting incorrect information on a consumer report.

this rider provides a certain amount of convertible term coverage for the spouse and allchildren, based on the amount of coverage provided in the base policy, e.g., 50% for the spouse, 25% for each child.

the proceeds are paid in installments of a fixed (level) dollar amount that does notchange but, due to policy loans or excess interest earnings, the number of payments may change. See: SettlementOptions.

an annuity that provides for income payments of a guaranteed amount (with principal and interestguaranteed) during the annuity period. See: Annuity.

the proceeds are paid in installments for a fixed period, which will not change; but, dueto policy loans or excess interest earnings, the dollar amount of the payments may change. See: Settlement Options.

a premium that need not be paid in a specific amount, e.g., in adjustable life and universallife policies, the premium may be changed. See: 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. See: Annuity.

a provision required by law which allows a policyowner to return a policy within 10 (or 20 days for areplacement policy) after delivery and receive a full premium refund.

the 30-day period after the premium due date during which the policy remains in full force, eventhough the premium is unpaid. If the insured dies during the grace period, the premium due is deducted from theproceeds payable.

purchased for an additional charge, this allows the insured to buyspecified amounts of additional insurance of the same type of policy (e.g., more whole life), at specified times,without a medical examination or other evidence of insurability.

an annuity which provides for the first payment to the annuitant immediately (whichmeans, at the end of the one annuity payment interval), e.g., if annuity payments are monthly, the first payment is inone month. See: Annuity.

a policy provision that says the insurer cannot dispute a claim because of misstatements onthe application once the policy has been in force during the insured’s lifetime for two years. This limitation does notapply to misstatement of age, waiver of premium, or accidental death benefits.

term insurance offered as a rider to a permanent policy, which has a face value whichincreases to match either (1) the build-up of cash value (return-of-cash-value rider) (2) the sums of the premiumspaid (return-of-premium rider) or (3) cost-of-living riders. See: Term Insurance.

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 the annuitant,until paid out. See: Annuity.

an interest existing when one person would reasonably benefit from the continuance ofanother person’s life or would suffer a financial or emotional loss at his death. In life insurance, (1) a person isconsidered to have an unlimited insurable interest in himself; (2) if the policy is purchased by someone other than theinsured, the beneficiary must have an insurable interest in the insured’s life at the time of application (but the interestneed not exist at the time of death).

defines and describes the scope of the coverage provided and the limits of indemnification.

a settlement option under which all or part of the policy proceeds are left with theinsurer at a guaranteed rate of interest, so that only interest is paid until another option is selected. See: SettlementOptions.

this policy assumes current interest rates in the premium rather than just aminimum guaranteed rate. Instead of paying dividends, the insurer adjusts premiums (usually annually) to reflectcurrent interest rates. See: Whole Life Insurance.

a consumer report that includes interviews with people familiar with the insured andapplicant (friends, boss, co-workers, etc.); requires notice to the applicant if done by insurer.

personal qualified retirement account or annuity through which an individual may accumulate tax deferreddollars each year and is not taxed on those dollars or the income they earn until withdrawn at retirement.

all IRA contributions in excess of IRA limits are subject to a penalty of6% if not withdrawn by the tax-filing deadline each year.

withdrawal of the portion of an IRA attributable to deductible contributionsand earnings prior to age 59 ½; results in a 10% penalty.

IRA distributions must start before April 1 of the year after age 70½and meet minimum distribution requirements. If they do not, there is a penalty of 50% of the amount that shouldhave been withdrawn.

an IRA funded with after-tax dollars, so all earnings in the account are nontaxable. When funds arewithdrawn after age 59 ½, none of the withdrawal is taxable, if the account has been open for at least five years.

a separate IRA for a nonworking spouse with NO earned income during a given tax year.

a beneficiary who cannot be replaced by the policyowner and without whoseconsent the policyowner does not have the right to surrender or take a loan on the policy. See: Beneficiary.

an annuity payable to two or more persons until one dies. See: Annuity.

insurance covering two or more insureds and paying upon the firstdeath.

an annuity payable to two or more annuitants until the last survivingannuitant has died. See: Annuity.

a mode of settlement under which income is payable to two ormore beneficiaries for as long as any beneficiary survives. After one beneficiary dies, payments continue in whole orin part to, and for the lifetime(s) of any surviving beneficiaries. See: Settlement Options.

plan under which a self-employed individual establishes a formal retirement plan to obtain taxadvantages (contributions deductible from the taxable income and plan earnings are not subject to income tax untilretirement).

a policy purchased by a business firm to protect itself againstfinancial loss caused by death of a vital member (one with special managerial or technical skill or experience) of thefirm. The firm is the owner and beneficiary of the policy insuring the member. Because the premiums are notdeductible, the proceeds are not taxable.

a deferred annuity paid for over a period of time, withfixed premiums (premiums of a specific amount that must be paid at specific times). See: Annuity.

a premium of a specific amount that must be paid at specific times.

term insurance with a level (unchanged) face value from the date the policy comes into force to thedate the policy expires. See: Term Insurance.

term insurance that has a premium which does not change during the policy term. See:Term Insurance.

an annuity payable forthe longer of a certain period or the annuitant’s life. See: Annuity.

a policy which has a premium payable for a limited period of years, whileproviding coverage for a longer period (e.g., a 20-pay whole life policy has premium payments for 20 years, butcoverage to 100; a 20-pay endowment at age 65 has premium payments for 20 years, but maturity and cash valueequaling face value when the insured reaches age 65). See: Whole Life Insurance.

contract between an insurer and a sponsor (policyowner, e.g., the employer) of a groupinsurance plan.

provision required in life policies which states that, if the age of the insured ismisstated, the amount of insurance will be adjusted to that which the premium paid would have purchased at thecorrect age, based on the company’s rate at the date of policy issuance (e.g., if an insured has been paying $300 peryear premium, but should have been paying $400 if he had stated his age correctly, his coverage would be 3/4 of thepolicy amount).

frequency with which premiums are paid (annually, semiannually, quarterly,etc.)

a life insurance policy that does not satisfy the “7-pay test.” It fails thetest if the total payments any time in the first seven years exceed the sum of the net level premiums to provide thecoverage on a paid-up basis (e.g., if a premium of $5,000 per year for seven years would pay-up the policy, theowner cannot have paid more than $10,000 over two years, $15,000 over three years, etc. For an MEC, loans orwithdrawals up to the amount in the account in excess of premiums paid are taxed as income and are subject to a10% penalty if taken before age 59 ½.

decreasing term insurance that provides a death benefit equal to theunpaid balance of a mortgage, payable to the mortgagee (lender).

bases the amount of life insurance to be purchased on the needs of the family for funds for lastexpenses, readjustment, mortgage payments, education, spousal income, and dependency period support, rather thanthe value of the life of the insured.

shows cost of the policy if it is retained. See: Cost ComparisonIndexes.

group insurance where members do not contribute to premium payments.100% of eligible members must participate in plan.

since an insurer cannot declare cash value forfeited when a policy lapses, thepolicyowner has nonforfeiture options for the use of this cash value. These are (1) cash surrender, (2) extended terminsurance and (3) reduced paid-up insurance.

the policyowner takes the cash upon surrender of the policy to the company.

this is the option automatically applied if no other selection is made. Itprovides for the cash value (less any loan) to be used as a net single premium to buy term insurance with the sameface amount as the original policy (less any policy loan). The amount of the cash value determines the how longthe term is extended.

this nonforfeiture option provides for the same type of insurance (e.g.,whole life if the original policy was whole life), but at a reduced face amount. The face amount is based on whatthe net cash value may purchase with a single premium.

this dividend is used to buy one-year term insurance. See:Dividend Option.

a whole life policy that has a level premium payable continuously throughout theinsured’s lifetime. Cash value is created from excess premiums paid in the earlier years and to supplementinadequate premiums in the later years. See: Whole Life Insurance.

this provision specifies the rights of the policyowner. During the insured’s lifetime theowner has the right to receive all cash values, loans, dividends and other benefits accruing under the policy and theright to exercise options and authorize changes or amendments to the policy.

dividends are used to buy additional paid-up insurance (paid-up additions) of thesame type as the original policy. See: Dividend Option.

taking money from the cash value account withoutborrowing it (so no interest is charged on the amount withdrawn). It reduces the cash value account and the deathbenefit by the amount withdrawn.

these policies allow the policyowner to participate in the good fortune of the insurerby receiving a share of the insurer’s divisible surplus in the form of policy dividends. Dividends cannot beguaranteed.

usually added to juvenile policies, this clause waives premiums if the payor (the person payingthe premiums, e.g., a parent of the insured child) dies or is disabled before the child reaches a certain age or beforethe policy is paid up or matures as a death claim or as an endowment. Can be attached to other types of policies aswell.

a loan made by the insurer to the policyowner, with the policy cash value assigned to the insurer assecurity for the loan. The loan need never be repaid, but if the loan balance and interest on the loan ever equal orexceed the cash value, the policy will be voided. If the loan is unpaid at the time of the insured’s death, the amountowed would be deducted from the payment made to the beneficiary.

a statement describing elements of the policy. Must be given with or before policy delivery ifthe buyer has a free-look period of at least 10 days, or before delivery if there is no refund provision.

withdrawal of the portion of an IRA attributable to deductible contributions andearnings prior to age 59 ½; results in a 10% penalty. See: IRA.

a beneficiary named by the insured to have first priority to receive the policy proceeds. See: Beneficiary.

a producer’s signed statement as to how long and how well he hasknown the insured, and information that may seem significant (e.g., business details, payment of premium,observations of the applicant/insured).

retirement plan (e.g., 401(k), Keogh, SEP, SIMPLE) that meets IRSguidelines, has IRS approval, and is offered on a nondiscriminatory basis. Employees contributing to the planreduce their taxable income by the amount of their contribution (salary reduction), and employers contributingreceive a tax deduction for their contributions.

term insurance in which premiums increase based on the length of time since the last proof ofinsurability as well as age. Allows insureds to periodically qualify for lower (select) rates by “re-entering” theinsurance (submitting updated proof of insurability). See: Term Insurance.

this nonforfeiture option provides for the same type of insurance (e.g., wholelife if the original policy was whole life), but at a reduced face amount. The face amount is based on what the netcash value may purchase with a single premium. See: Nonforfeiture Options.

applies the dividend to the next premium, so that the nextpremium payment is reduced. See: Dividend Option.

gives the policyowner the right to reinstate a policy. The conditions to do so arewith evidence of insurability, within three years after it lapsed, if there is still coverage in effect under a reducedpaid-up policy or an extended term policy.

when a new life insurance policy or annuity is to be purchased and an existing life insurancepolicy or annuity will be terminated, reduced in value, amended to reduce coverage or benefits, reissued with areduced cash value, or pledged as collateral or borrowed in total amounts exceeding 25% of loan value.

statements made by an applicant on the policy application that are presented as beingsubstantially true to the best of his knowledge and belief but which are not warranted as being exact in every detail.Legally, all statements made by an applicant are considered, in the absence of fraud, to be representations.

IRA distributions must start before April 1 of the year after age70-½ and meet minimum distribution requirements. If they do not, there is a penalty of 50% of the amount thatshould have been withdrawn. See: IRA.

utilizes increasing term insurance to increase the death benefit of apermanent policy to equal the policy face amount plus the amount of the cash value in the policy. See: Term Rider.

promises to return the premiums paid for the policy, if the insured dies within acertain time after the policy goes into effect. It is actually an increasing term rider that pays an amount equal to thepremiums paid for the policy in the event of the insured’s death during the term of the rider. See: Term Rider.

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. See: Beneficiary.

a withdrawal of funds from one retirement plan for reinvestment in another. This is tax free ifcompleted within 60 days. Differs from a transfer from one IRA to another in that with a rollover funds go to theparticipant and then to the new plan, while with a transfer funds go directly from one custodian to another.

an IRA funded with after-tax dollars, so all earnings in the account are nontaxable. When funds arewithdrawn after age 59 ½, none of the withdrawal is taxable if the account had been held open for at least five years.See: IRA.

the method by which the beneficiary or insured may have policy proceeds paid. If anoption is not selected by the policyowner prior to the insured’s death, it can be selected by the beneficiary. If thepolicyowner selects an option for the beneficiary, he may give the beneficiary the right to change the selection orrestrict the right.

the proceeds are paid in installments of a fixed (level) dollar amount that does notchange, but due to policy loans or excess interest earnings, the number of payments may change.

the proceeds are paid in installments for a fixed period, which will not change, but,due to policy loans or excess interest earnings, the dollar amount of the payments may change.

a settlement option under which all or part of the policy proceeds are left with theinsurer at a guaranteed rate of interest, so that only interest is paid until another option is selected.

a mode of settlement under which income is payable to twoor more beneficiaries for as long as any beneficiary survives. After one beneficiary dies, payments continue inwhole or in part to, and for the lifetime(s) of any surviving beneficiaries.

a mode of settlement under which the policy proceeds plus interest are usedto provide an annuity payable to one beneficiary for her lifetime, and payments stop at her death.

a qualified retirement plan for employers with fewer than 100 employees. May be structured as anIRA or 401(k). Maximum contribution is $7,000 per year, and employer can either match up to 3% of employee’scompensation, or contribute 2% for each employee.

a pension plan under which the employer contributes toIRA’s for all employees (over 21 and with three years service). Contributions may be up to 25% of the employee’sincome.

a mode of settlement under which the policy proceeds plus interest are used toprovide an annuity payable to one beneficiary for her lifetime. See: Settlement Options.

an annuity paid for in full with one premium payment. It could be an immediateannuity or a deferred annuity. See: Annuity.

a policy paid for with one premium. Creates a paid-up policy, has the highestimmediate cash value, and covers the insured for life. See: Whole Life Insurance.

arrangements under which two parties split the dollar cost of insurance on one of them.For example, an employer may split the cost of insurance on the employee, by paying an amount equal to the annualincrease in policy cash value; in return, the employer receives the amount in the cash value account upon policysurrender or payment of a claim.

a separate IRA for a nonworking spouse with NO earned income during a given tax year. See: IRA.

insures the spouse or another person (e.g., child, partner) with aninsurable interest in the insured. If the insured covered by the base policy dies, the rider terminates and the personinsured by the rider may have a period within which to buy, at attained age rates, an individual policy withoutevidence of insurability. See: Term Rider.

an annuity payable for the life of the annuitant without any guarantee as to aminimum amount or payment period. See: Annuity.

provides that if the insured commits suicide within two years after the date of issue, theinsurer will only return premiums paid, without interest.

shows the cost if the policy is surrendered. See: Cost ComparisonIndexes.

insurance covering two or more insureds and payingthe benefit upon the death of the last surviving insured.

tax-deferred retirement plan available to employees ofinstitutions who qualify for filing as nonprofit tax status under IRS Section 501(c) (3). This includes organizationsoperated exclusively for religious, charitable, scientific, literary or educational purposes, and public school teachers.Contributions are used by employers to purchase annuities or mutual fund shares for employees. The funds in theplan are nontaxable until taken as income in retirement.

a life policy issued for a term of years, usually building no cash value and expiring withoutvalue. The policy terminates at the end of the policy term.

a one-year term policy which at the end of each policy year allows the insuredto continue the insurance for another year, at the premium for his attained age, but without evidence ofinsurability. It results in a “step-rate” premium.

term insurance that, without proof of insurability, may be converted to a permanentform of insurance within the period specified in the policy.

term insurance that has a face value that decreases (usually monthly or annually) fromthe date the policy takes effect to the date the policy expires.

EXTENDED TERM: See Nonforfeiture Options.

term insurance offered as a rider to a permanent policy which has a face value whichincreases to match either the build-up of cash value (return-of-cash-value rider) or (2) the sums of the premiumspaid (return-of-premium rider).

term insurance with a level (unchanged) face value from the date the policy comes into force tothe date the policy expires.

term insurance in which premiums increase based on the length of time since the last proofof insurability as well as age. Allows insureds to periodically qualify for lower (select) rates by “re-entering” theinsurance (submitting updated proof of insurability).

a benefit added to a term insurance policy

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 changein premiums, and terminates as each child reaches a specified age.

for an increased premium, the policyowner can increase the death benefit of thepolicy to reflect an increase in the cost of living (based on the Consumer Price Index).

increases the death benefit of a permanent policy to equal the policy faceamount plus the amount of the cash value in the policy.

promises to return the premiums paid for the policy, if the insured dies withina certain time after the policy goes into effect. It is actually an increasing term rider that pays an amount equal tothe premiums paid for the policy in the event of the insured’s death during the term of the rider.

insures the spouse or another person (e.g., child, partner) with aninsurable interest in the insured. If the insured covered by the base policy dies, the rider terminates and the personinsured by the rider may have a period within which to buy, at attained age rates, an individual policy withoutevidence of insurability.

ownership of a policy by someone other than the insured, e.g., ownership by aparent of a juvenile policy insuring a child.

provides that proceeds are paid as if the insured outlives thebeneficiary if it cannot be determined who died first.

insurance that offers a flexible premium and adjustable benefit. These policiesare “transparent,” in that the policyholder must be shown the premiums, death benefits, interest credits, mortalitycharges, expenses and cash values separately each year. Cash values and insurance are unbundled (decoupled), e.g.,shown separately. Death benefits are offered as Option A and Option B. Option A has a level death benefit,consisting of an increasing cash value plus decreasing insurance, as in whole life. Option A has a “risk corridor,” anamount of insurance that must be maintained to qualify as life insurance. Option B has an increasing death benefitconsisting of level insurance plus increasing cash value.

an annuity which has annuity payments which will vary in amount based on the value of aseparate account which has been used to make investments. See: Annuity.

universal life insurance that has a flexible premium as well as cashvalues and a death benefit which vary based on investment results.

insurance that has cash values and death benefits that vary based on the returns frominvestments, e.g., in common stocks. It has a fixed premium and a minimum guaranteed death benefit. See: WholeLife Insurance.

provides the insured need not pay premiums, and the insurer will credit theinsured as if premiums had been paid (so cash value builds up as if the premiums had been paid) while the insured isdisabled. Goes into effect after the insured has been totally disabled for a specified period of time (usually sixmonths).

a provision which would exclude coverage if the insured dies while in military service (statusclause) and/or if the insured dies as a result of war or military service (results clause).

statements which are supposed to be entirely true. When made by the insured, their truth becomes acondition of the validity of the policy. If untrue, they will void the policy.

life insurance which continues during the insured’s whole lifetime. It provides forpayment of the face amount at the time of the insured’s death or, if the insured is still living, at age 100.

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).

this policy assumes current interest rates in the premium rather than justa minimum guaranteed rate. Instead of paying dividends, the insurer adjusts premiums (usually annually) toreflect current interest rates.

a policy which has a premium payable for a limited period of years, whileproviding coverage for a longer period (e.g., a 20-pay whole life policy has premium payments for 20 years, butcoverage to 100; a 20-pay endowment at age 65 has premium payments for 20 years, but maturity and cash valueequaling face value when the insured reaches age 65).

a whole life policy that has a level premium payable continuously throughoutthe insured’s lifetime. Cash value is created from excess premiums paid in the earlier years and to supplementinadequate premiums in the later years.

a policy paid for with one premium. Creates a paid-up policy, has the highestimmediate cash value, and covers the insured for life.

insurance that has cash values and death benefits that vary based on the returns frominvestments, e.g., in common stocks. It has a fixed premium and a minimum guaranteed death benefit.