Life Insurance Glossary

A’s

absolute assignment
An irrevocable transfer of complete ownership of a life insurance policy from one party to another. See also assignment.

accelerated benefits
Some companies provide “accelerated benefits,” also known as “living benefits.” This rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home.

accidental death and dismemberment (AD&D) rider
A supplementary benefit rider or endorsement that provides for an amount of money in addition to the basic death benefit of a life insurance policy. This additional amount is payable only if the insured dies or loses any two limbs or the sight of both eyes as the result of an accident. Some AD&D riders pay one half of the benefit amount if the insured loses one limb or the sight in one eye.

accidental death benefit (ADB) rider
A supplementary benefit rider or endorsement that provides for an amount of money in addition to the basic death benefit of a life insurance policy. This additional amount is payable only if the insured dies as the result of an accident.

accidental means provision
A life insurance policy accidental death benefit provision which states that an accidental death benefit will be payable if the insured’s death was the result, directly and independently of all other causes, of bodily injury caused solely by external, violent, and accidental means.

accidental result provision
A life insurance policy accidental death benefit provision which states that an accidental death benefit will be payable if the insured’s death was the result, directly and independently of all other causes, of accidental bodily injury.

accident perils
A classification used by health insurance underwriters to evaluate the type and degree of peril represented by a particular occupation. Accident perils include exposure to fire, the use of dangerous machinery, the handling of heavy objects, and the risk of falling. See also illness perils.

accumulated cost of insurance
A factor used in the calculation of life insurance reserves. For a given group of insureds, the accumulated cost of insurance equals the net single premium that would have to be paid at the end of the term of coverage by the surviving insureds to provide death benefits on the insureds who died during the term.

accumulated value
An amount of money invested plus the interest earned on that money.

accumulation at interest option
A life insurance policy dividend option under which policy dividends are left on deposit with the insurer to accumulate at interest. Also called the accumulation option.

accumulation units
The term used to identify ownership shares in a variable annuity’s separate-account fund. When a person pays premiums for a variable annuity, those premiums are credited to the purchaser’s account as a certain number of accumulation units. After the accumulation period ends, the accumulation units are used to buy annuity units. See also annuity units.

actuarial assumptions
(1) The mortality, morbidity, interest, expense, and other forecasts used to calculate premium rates and reserves. (2) In pension planning, the assumptions that actuaries make in the areas of investment earnings, mortality, plan expenses, salary levels, and employee turnover. These assumptions affect the amount of the annual contribution that is necessary to adequately fund a defined benefit pension plan.

actuarial cost method
For a defined benefit pension plan, a method of calculating the annual amount a plan sponsor must contribute to fund a given set of plan benefits for a particular group of participants.

actuary
A technical expert in life insurance, particularly in mathematics. A person in this job applies the theory of probability to calculate mortality rates, morbidity rates, lapse rates, premium rates, policy reserves, and other values.

additional term insurance option
A life insurance policy dividend option under which policy dividends are used as a net single premium to purchase one-year term insurance. Also called the additional insurance option or the fifth dividend option.

adjustable life insurance policy
A life insurance contract designed specifically to allow the policyowner to alter the policy’s plan by changing the amount of the coverage or the amount of the premium. The insurer calculates the specific plan of insurance that can be provided based on the requested death benefit and premium. Therefore, an adjustable life insurance policy can use insurance plans that range from a term insurance policy of short duration to a limited-payment whole life insurance policy.

admitted reinsurer
In the United States, a reinsurer which is licensed to accept reinsurance in a given jurisdiction. Also called an authorized reinsurer. Contrast to nonadmitted reinsurer.

advanced underwriting department
An insurance company home office department responsible for providing technical and sales assistance to agents involved in estate planning and business insurance cases. Also known as the estate planning department.

agency
The legal relationship between an agent and a principal. See agency relationship.

agency relationship
In law, the relationship between two parties by which one party, the agent, is authorized to perform certain acts on behalf of the other party, the principal.

agency system
A distribution system in which insurance companies use their own commissioned agents to sell and deliver insurance policies. The agency system is the most common system for distributing individual life insurance products and includes the branch office distribution system and the general agency distribution system. Also called the ordinary agency system. See also branch office distribution system, brokerage distribution system, and general agency distribution system.

agent
A party who is authorized by another party, the principal, to act on the principal’s behalf in contractual dealings with third parties. Called a mandatary in Quebec. See also insurance agent.

agent-brokers
Career agents who place business with companies other than their primary companies. Also known as agents of other companies, surplus brokers, or simply brokers.

agent of record
The agent or broker who is recognized by the insurer as the person to whom the commission is to be paid.

agent’s statement
The portion of the insurance application in which the agent reports anything he or she knows or suspects about the proposed insured that is not reported by the applicant or proposed insured.

aggregate mortality table
A mortality table based on the experience of all insured lives, including mortality rates both during and after the select period. The mortality rates of an aggregate mortality table fall between those of the select and the ultimate mortality tables. See also mortality tables, select mortality table, select period, and ultimate mortality table.

American Council of Life Insurance (ACLI)
In the United States, an organization which collects and disseminates data on life insurance markets.

Annual Statement
An accounting report that insurers must file each year with the appropriate regulatory agency. This report contains detailed accounting and statistical data that regulators use to evaluate a life and health insurance company’s solvency and its compliance with insurance laws.

annuitant
(1) The person designated to receive annuity payments. (2) The person whose lifetime is used as the measuring period to determine how long benefits are payable under a life annuity.

annuity
(1) A series of payments made or received at regular intervals. (2) A contract that provides for a series of payments to be made or received at regular intervals. There are many kinds of annuities. For the annuities identified in this glossary, see annuity certain, annuity due, annuity immediate, deferred annuity, deferred life annuity, disabled life annuity, flexible premium annuity, group deferred annuity, immediate annuity, joint and survivor annuity, level premium annuity, life annuity, life annuity with period certain, refund annuity, single premium annuity, single premium deferred annuity (SPDA), straight life annuity, temporary life annuity, temporary life annuity due, variable annuity, whole life annuity, and whole life annuity due.

annuity certain
An annuity that provides a benefit amount payable for a specified period of time regardless of whether the annuitant lives or dies.

annuity due
A series of payments in which the payments are made at the beginning of each interval of time.

annuity immediate
A series of payments in which the payments are made at the end of each interval of time.

annuity mortality table
A tabulation of probabilities of dying at each age. Used by actuaries to calculate premiums and reserves for annuities in which benefits are paid only if a designated person is alive. Annuity mortality tables usually project lower rates of mortality than do mortality tables that are used for life insurance. See also mortality tables.

annuity period
The time between each benefit payment made under an annuity contract.

annuity units
The term used for ownership shares in a variable annuity’s separate-account fund after the accumulation period has ended. Annuity units are bought with accumulation units and are used to determine benefit payment amounts. See also accumulation units.

antiselection
The tendency of people with a greater-than-average likelihood of loss to apply for or continue insurance to a greater extent than do other people. Also called adverse selection or selection against the insurer.

apparent authority
Authority that is not expressly conferred on an agent but that the principal either intentionally or negligently allows a third party to believe the agent possesses. See agent and principal. Compare to express authority and implied authority.

applicant
The party applying for an insurance policy.

application
A form that must be completed by an individual or other party who is seeking insurance coverage. This form provides the insurance company with much of the information it will need to decide whether to accept or reject the risk.

approval type temporary insurance agreement
An agreement issued in conjunction with a conditional premium receipt that provides temporary life insurance coverage as of the date the insurer approves the proposed insured as a standard risk. See also conditional premium receipt and temporary insurance agreements. Compare to insurability type temporary insurance agreement.

assignee
The party to whom all or certain contractual rights are transferred under an absolute or collateral assignment.

assignment
(1) The transfer of ownership rights in a life insurance policy or other type of contract from one party to another. (2) The document that causes the transfer of ownership rights to go into effect. See also absolute assignment and collateral assignment.

assignment of benefits
An authorization directing an insurer to make payment directly to a provider of benefits, such as a physician or dentist, rather than to the insured.

assignor
The person or party who transfers certain contractual rights under an absolute or collateral assignment.

association group insurance
Group insurance extended to the members of a trade, professional, or other association.

assumption reinsurance
A reinsurance agreement by which one company permanently transfers full responsibility for a block of policies to another company. After the cession, the ceding company is no longer a party to the insurance agreement.

attained age
The current age of the insured. The age of the insured at the time the insured’s policy was issued plus the number of years elapsed since the policy was issued.

attained age conversion
The changing of a life insurance policy from one form of insurance to another (such as from term life insurance to whole life insurance) at a premium rate that is based on the age the insured person has reached at the time the change takes place.

Attending Physician’s Statement (APS)
A written statement from a physician who has treated, or is currently treating, a proposed insured or an insured for one or more conditions. The statement provides the insurance company with information relevant to underwriting a risk or settling a claim.

automatic dividend option
For a particular life insurance policy, the dividend option that applies in the event the policyowner does not choose an option. See dividend options.

automatic nonforfeiture option
For a particular life insurance policy, a specified nonforfeiture benefit that becomes effective automatically when a renewal premium is not paid by the end of the grace period and the policyowner has not elected another nonforfeiture option. See also nonforfeiture options.

automatic premium loan (APL)
A life insurance nonforfeiture option that allows the insurer to pay overdue premiums on a policy by establishing a loan against the policy’s cash value. See also nonforfeiture options.

automatic reinsurance treaty
A reinsurance agreement in which the reinsurer agrees, for a stipulated type of risk, to accept each risk or a portion of each risk submitted by the ceding company, up to a certain limit, provided the ceding company insures up to its usual retention limit. In this agreement, the ceding company assumes full underwriting responsibility for all cases reinsured.

average indexed monthly earnings
In the United States, the figure on which social security disability, retirement and other benefits are based. The figure is an average of the monthly earnings on which a worker has paid social security tax. The figure is indexed, that is, adjusted to compensate for inflation.

aviation exclusion
A life insurance contract provision which specifies that the death benefit is not payable if the insured dies as a result of certain aviation activities.