<< Previous page

Rate-Up in Age – System of rating substandard risks that involves assuming the insured to be older than he or she really is and charging a correspondingly higher premium.

Rebating – Returning part of the commission or giving anything else of value to the insured as an inducement to buy the policy. It is illegal and cause for license revocation in most states. In some states, it is an offense by both the agent and the person receiving the rebate.

Re-entry Option – An option in a renewable term life policy under which the policy-owner is guaranteed, at the end of the term, to be able to renew his or her coverage without evidence of insurability, at a premium rate specified in the policy.

Reinstatement – Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

Renewable Term – Some term policies provide that they may be renewed on the same plan for one or more years without medical examination but with rates based on the insured’s attained age.

Replacement – Act of replacing one life insurance policy with another; may be done legally under certain conditions. (See twisting.)

Representation – Statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief but that are not warranted as exact in every detail.

Rider – Strictly speaking, a rider adds something to a policy. However, the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy’s conditions are expanded and additional coverages added, or a coverage or condition is waived.

Risk Selection – The method a home office underwriter uses to choose applicants that the insurance company will accept. The underwriter must determine whether risks are standard, substandard or preferred and set the premium rates accordingly.

Salary Continuation Plan – An arrangement whereby an income, usually related to an employee’s salary, is continued upon his or her death; often paid to the employee’s beneficiary.

Secondary Beneficiary – An alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.

Section 1035 Exchanges – Certain life insurance policy or annuity exchanges that are considered, according to Internal Revenue Code section 1035, to be tax-free.

Standard Risk – Person who, according to a company’s underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

Stock Redemption Plan – An agreement under which a closely held corporation purchases a deceased stockholder’s interest.

Sub-Standard Risk – Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

Suicide Clause – Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years, after the issue date, the company’s liability will be limited to a return of premiums paid.

Term Insurance – Protection during limited number of years; expiring without value if the insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection.

Term of Policy – Period for which the policy runs. In life insurance, this is to the end of the term period for term insurance.

Tertiary Beneficiary – In life insurance, a beneficiary designated as third in line to receive the proceeds or benefits if the primary and secondary beneficiaries do not survive the insured.

Third-Party Owner – A policy-owner who is not the prospective insured.

Twisting – Practice of inducing a policy-owner in one company to lapse, forfeit or surrender a life insurance policy for the purpose of taking out a policy in another company. Generally classified as a misdemeanor, subject to fine, revocation of license and sometimes imprisonment.

Underwriter – Company receiving premiums and accepting responsibility for fulfilling the policy contract. Also, company employee who decides whether the company should assume a particular risk; or the agent who sells the policy.

Uniform Simultaneous Death Act – Model law that states when an insured and beneficiary die at the same time, it is presumed that the insured survived the beneficiary.

Unilateral – A distinguishing characteristic of a life insurance contract in that it is only the insurance company that pledges anything. The policy-owner does not even promise to pay premiums; therefore, it is really a one-sided contract favoring the policy-owner.

Uninsurable Risk – One not acceptable for insurance due to excessive risk.

Universal Life – Flexible premium, two-part contract containing renewable term insurance and a cash value account that generally earns interest at a higher rate than a traditional policy. The interest rate varies. Premiums are deposited in the cash value accounts after the company deducts its fee and a monthly cost for the term coverage.

Waiver of Premium – Rider or provision included in most life insurance policies exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually six months.

<< Previous page

Lapse – Termination of a policy upon the policy owner’s failure to pay the premium within the grace period.

Level Term Insurance – Term coverage on which the face value and premiums remain unchanged from the date the policy comes into force to the date the policy expires.

Medical Examination – Usually conducted by a licensed physician; the medical report is part of the application, becomes part of the policy contract and is attached to the policy. A “non-medical” is a short-form medical report filled out by the agent. Various company rules, such as amount of insurance applied for or already in force; applicant’s age, sex, past physical history; data revealed by inspection report, etc., determine whether the examination will be “medical” or “non-medical.”

Medical – A document completed by a physician or another approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.

Misrepresentation – Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.

Mortality – The relative incidence of death within a given group.

Mortgage Insurance – A basic use for life insurance, so-called because many family heads purchase insurance for specifically paying off any mortgage balance outstanding at their death. The insurance generally is made payable to a family beneficiary instead of to the mortgage holder.

Non-Medical Insurance – Issued on a regular basis without requiring a regular medical examination. In passing on the risk, the company relies on the applicant’s answers to questions regarding his or her physical condition and on personal references or inspection reports.

Offer and Acceptance – The offer may be made by the applicant by signing the application, paying the first premium and, if necessary, submitting to physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or the offer may be made by the company when no premium payment is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.

Other Insured Rider – A term rider covering a family member other than the insured that is attached to the base policy covering the insured.

Preferred Risk – A risk whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity of unimpaired lives of the same age. (See standard risk.)

Premium – The periodic payment required to keep and insurance policy in force.

Primary Beneficiary – In life insurance, the beneficiary designated by the insured as the first to receive policy benefits.

Proceeds – Net amount of money payable by the company at the insured death or at policy maturity.

<< Previous page

Face Amount – Commonly used to refer to the principal sum involved in the contract. The actual amount payable may be decreased by loans or increased by additional benefits payable under specified conditions or stated in a rider.

Free Look – Provision required in most states whereby policy owners have either 10 or 20 days to examine their new policies at no obligation.

Grace Period – Period of time after the due date of a premium during which the policy remains in force without penalty.

Guaranteed Insurability (Guaranteed Issue) – Arrangement, usually provided by rider, whereby additional insurance may be purchased at various times without evidence of insurability.

Guaranty Association – Established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurers through assessments.

Incontestable Clause – Provides that, for certain reasons such as misstatements on the application, the company may void a life policy after it has been in force during the insurance lifetime, usually one or two years after issue.

Increasing Term Insurance – Term life insurance in which the death benefit increases periodically over the policy’s term. Usually purchased as a cost of living rider to a whole life policy.

Independent Agency System – A system for marketing, selling and distributing insurance in which independent brokers are not affiliated with any one insurer but represent any number of insurers.

Inspection Report – Report of an investigator providing facts required for a proper decision on applications for new insurance and reinstatements.

Insurability – All conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual’s risk profile.

Insurable Interest – Requirement of insurance contracts that loss must be sustained by the applicant upon the death of another and it must be sufficient to warrant compensation.

Insurance – Social device for minimizing risk of uncertainty regarding loss by spreading the risk over a large enough number of similar exposures to predict the individual chance of loss.

Insurer – Party that provides insurance coverage, typically through a contract of insurance.

Key Employee Insurance – Protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise. Also called key executive insurance.