GLOSSARY

Adverse Selection
The reason why many insurance companies would rather go to you than have you come to them. People with poor health are more apt to apply for or continue insurance than those with average or better-than-average health expectations.

Beneficiary
The person named to be the recipient of the proceeds from the life insurance policy, following the death of the insured person.

Cash (Surrender) Value
Stipulated by the policy, the dollar amount available for cash or loans withdrawals. Note: Prematurely, accessing resources available within the cash surrender value, will reduce the overall fee paid -out as the death benefit.

Contestability Period
The time period during which the insurer is not obligated to pay a claim on account of material misrepresentations discovered within the policy holder's original application. Typically, a policy contains a two year contestable period and is labeled "non contestable" once this timeframe has expired.

Convertible Term Insurance
As an option to the policy owner, term insurance which can be transferred (converted) to a permanent insurance policy. The favorable aspect is the insured one need not provide proof of his/ her insurability.

Dividend
Return on part of the premium based upon the insurer's investment, mortality rate, and payment history. Dividends are not guaranteed.

Face Amount
In the instance of demise, the pay-out amount stated on the face of the policy. This figure does not include additional payable amounts incurred due to accidental death, special provisions, or amounts accrued due to policy dividends.

Illustration
A proposal showing a policy's future payments, cash value and death benefits. Non-guaranteed values are based on the company's current rates of interest, mortality and expenses. As they often contain unrealistic assumptions, caution is advised when purchasing a policy solely based upon these figures.

Insurance Defined
A social device where many share the losses of a few by transferring a portion of the loss to the insurance company in exchange for a certain cost

Insurability
Accepted status granted to an applicant to receive insurance.

Insured or Insured Life
The person based upon whose life variables, i.e. age, health and wage potential, the policy is issued.

Level Premium (Life Insurance)
Life insurance for which the premium remains constant from year to year. During the early years, the premium is normally more than the actual cost of protection. In the later years, the policy's premium is actually lower than the actual cost. The concept is for there to be a reserve established as the natural result of level premiums. The payments of the formative years, together with the interest that is earned, balances out the underpayment of the latter years.

Loan (Policy Loan)
A monetary loan made by a life insurance company to a policy holder based upon the security of the cash value of a policy.

Medical Information Bureau (MIB)
A private company that collects medical information on behalf of life insurance companies who are affiliated MIB members. Member companies are required to provide brief, coded reports of individual medical histories of policy holders to MIB on a confidential basis. However, these reports do not include information pertaining to whether or not an application has been issued, rated or declined.

Mortality Charge
The cost of the insurance protection on a whole life product. On an illustration, mortality charges referred to as "current" are not guaranteed. Those stated as "maximum" are the contract guarantees. The mortality charge is similar to a one-year term rate and increases with the policy holder's ultimate age. For example, a typical $200,000 whole life policy for a 40-year-old male carries a premium of about $4,000 a year. Of that, roughly $700 is the mortality charge, and the rest of the premium goes toward the investment portion.

Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.

Participating Policy
Life insurance policy that is eligible for the payment of dividends by the sponsoring company.

Permanent (Life Insurance)
This title includes basically any form of life insurance except term (temporary). Usually it is insurance that builds up a cash value, such as whole life.

Policy Holder
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

Premiums
Payments made by the policy holder (typically) to the insurance company to maintain a policy and keep it active.

Rating Classes
Insurance companies used to have just three classes -- standard (the lowest), select (middle) and preferred (the best rates). As of more recently, however, some insurance companies have been dividing the classes into additional categories. For this very reason, it pays to shop around for the best rates as one company may place you in the best rating category and another may place you in a lower class.

Renewable Term Insurance
Term insurance that carries with it the option (by the policy holder, without proof of insurability) of being renewed at the end of the specified period. However, this type of policy may only be renewed for a limited number of times with rates progressively increasing in accordance with the age of the insured

Second-To-Die (Survivorship Policies)
Also known as survivorship policies, this type of life insurance policy insures two lives under one policy. The death benefit is payable upon the demise of the second person. Generally, this product is used as a funding vehicle for estate taxes payable upon the second death when the unlimited marital deduction is enforced. Important to compare and contrast the rate of two policies versus a single one of this type.

Single Premium Life Insurance
This type of policy requires the payment of one initial lump-sum, up-front premium which often guarantees the policy is paid-in-full throughout the entire span of the policy holder's lifetime. Beware. Yet, often very misleading, these policies sometimes do not come with a guarantee that future payments will never be required, a fact over which the agent may quickly gloss.

Term Insurance
Life insurance policies under which premiums typically increase as the insured one ages and where there is no build up of any type of monetary cash reserve.

Universal Life Insurance
A flexible premium life insurance policy under which the policy holder has the discretion of changing the payout and recipient of the death benefit multiple times (with satisfactory evidence of insurability for increases), as well as, vary the timing of premium payments.

Variable
Variable-life insurance combines a mortality charge with a savings vehicle chosen among a number of options offered by your insurer. The savings vehicle is usually one of several investment portfolios structured like mutual funds. On average, most companies offer 10 different portfolios, including stock, bond and money-market funds. The insurers often manage these funds themselves, collecting fees for administering the insurance and managing the portfolios.
There are two basic types of variable life. One demands a fixed premium payment. The other, variable-universal life, has a flexible premium like universal life. Remember, though, that variable returns often fluctuate with the financial markets.

If the stock market goes south, then one may find themselves with a low cash-value. For this reason, variable life is not recommended for people on a tight budget or those who may need to dip into their savings on short notice. Many variable buyers would be better off buying term insurance and investing separately in a mutual fund.

Whole Life Insurance
A basic type of permanent life insurance which can provide lifetime protection at a fixed premium amount. Generally speaking, regular premiums must be paid as long as the policy remains active.