Insurance Glossary
A
actual cash value: (ACV) "Actual Cash Value" is the replacement cost of property damaged
or destroyed at the time of loss, with deduction for depreciation. Actual cash value cannot
exceed the applicable limit of liability shown in the declarations of the policy, nor the
amount it would cost to repair or replace such property with material of like kind and quality
within a reasonable amount of time after a loss. [coverageglossary.com]
annuity: (1) An amount of money payable yearly, or by extension, at other regular intervals;
(2) An agreement by an insurer to make periodic payments that continue during the survival
of the annuitant(s) or for a specified period.
annuitant: The person who is covered by an annuity and who will normally receive the benefits
of the annuity.
annuitization: Waiving access to your accumulated dollars in return for guaranteed payments.
annuitization factor: The rate per thousand used to determine the periodic payout of an
annuity.
assigned risk: A risk not ordinarily acceptable to insurers which is, according to state
law, assigned to insurers participating in a plan in which the insurers agree to accept
their share of these risks.
automatically convertible term life insurance: A life insurance policy designed to be converted
to permanent insurance at a predetermined date without the express instructions of the insured
at that time. [www.nils.com/rupps/automatically-convertible-term-life-insurance.htm]
automobile insurance: A form of insurance that protects against losses involving autos.
Different types are available depending on the needs and wants of those buying policies.
Examples of coverage types include: bodily injury liability, property damage liability,
medical payments, and collision and comprehensive coverage for physical damage to the insured's
vehicle.
automobile insurance plans: The name for "assigned risk" plans. These are plans set up and
monitored by the state to help people who are unable to secure auto insurance through standard
insurance carriers. See Assigned Risk.
B
basic auto policy: Although still used today to insure substandard risks, two-wheel motorized
vehicles, and commercial autos, the Basic Auto Policy has been primarily replaced by the
Personal Auto Policy, which combines both physical damage coverage and liability insurance
for claims arising out of the ownership or use of a vehicle.
beneficiary: The person(s) named in the policy to receive the life insurance proceeds upon
the death of the insured.
binder: A binder is a legal agreement that serves to effect insurance coverage for a specified
period of time until the actual insurance policy can be issued.
blended product: A general term used to describe products structured with both Whole Life
and Term components.
bodily injury liability: Legal liability for causing physical injury or death to another.
burial insurance: A life insurance policy of minimal face amount intended to provide just
enough insurance to cover the burial and funeral expenses.
C
collision insurance: This covers loss to the insured person's own auto caused by its collision
with another vehicle or object.
D
death benefit: This is the contractual amount payable before adjustments for outstanding
loans, etc., when the person insured on a term or permanent life insurance or deferred annunity
policy dies.
deferred annuity: An annuity not yet paying income because it is still in the accumulating
or pre-retirement stage, which means money is accumulating on a tax-deferred basis.
E
F
fixed annuity: A traditional insurance investment vehicle, often used for retirement accounts,
that guarantees principal and a specified interest rate and may also offer dividends.
G
group insurance: Insurance that provides coverage for several people under one contract,
called a master contract.
H
Health Maintenance Organization: (HMO) A form of health insurance combining a range of coverages
in a group basis. A group of doctors and other medical professionals offer care through
the HMO for a flat monthly rate with no deductibles. However, only visits to professionals
within the HMO network are covered by the policy. All visits, prescriptions and other care
must be cleared by the HMO in order to be covered. A primary physician within the HMO handles
referrals. [InvestorWords.com]
I
J
joint-and-survivor annuity: This type of benefit payment provides the spouse with monthly
income equal to at least one-half the amount of the participant's benefit. To reflect the
cost of the survivor protection, the participant's benefit is usually reduced.
K
L
M
Medicare Managed Care Plan: A Medicare Managed Care Plan provides a full range of health
care services, including all Medicare covered services. A Medigap policy is a private insurance
policy. It is designed to work with the Original Medicare Plan to cover some of the costs
that Original Medicare does not cover.
N
O
ordinary life insurance: A form of whole life insurance that is issued in multiples of $1,000,
with premiums payable on a monthly, quarterly, semiannual or annual basis until the insured
dies.
P
permanent life insurance: Whole life, interest sensitive whole life and universal life insurance
are types of permanent life insurance. Permanent insurance is designed to meet long term
life insurance needs of an individual or party. The premiums are usually level throughout
the insured's life. The policy builds-up a cash value which can be borrowed against and
is available as a lump sum on cashing in the policy. Permanent life insurance protects your
family in the event of a premature death, builds value on a tax-deferred basis, and is an
effective estate planning vehicle which, if structured properly, allows you to pass assets
to your beneficiaries without incurring income or federal estate tax.
Q
R
rider: This is an endorsement to a life insurance policy that modifies the contract by expanding
the benefits that are otherwise payable under the contract. Also known as a Policy Rider.
S
single-premium deferred annuity: An insurance policy bought by the sponsor of a pension
plan for a single premium. In return, the insurance company agrees to make lifelong payments
to the employee (the policyholder) when that employee retires.
straight-life annuity: Benefits from a qualified plan that are paid to the participant in
monthly installments for the duration of the participant's life.
T
term life insurance: A contract that provides a death benefit but no cash build-up or investment
component. The premium remains constant only for a specified term of years, and the policy
is usually renewable at the end of each term. Usually the least expensive form of life insurance,
term life insurance covers you for a fixed period (term) of time that you select. People
you name as beneficiaries collect a death benefit if you die while covered. Unlike whole,
universal, and variable life insurance, term insurance doesn't build up any savings for
you. In this respect, it is "pure" insurance.
U
universal life insurance: A whole life insurance product whose investment component pays
a competitive interest rate rather than the below-market crediting rate. A flexible premium
life insurance policy under which the policyowner may change the death benefit from time
to time (with satisfactory evidence of insurability for increases) and vary the amount or
timing of premium payments. Premiums (less expense charges) are credited to a policy account
from which mortality charges are deducted and to which interest is credited at rates, which
may change from time to time.
V
variable annuity: An annuity, the value of which fluctuates based on the market performance
of an underlying securities portfolio. Unlike fixed annuities, there is no guarantee of
principal or rate of return.
variable life insurance: Like whole life insurance, variable life insurance provides coverage
for your entire life and builds up savings over time. People you name as beneficiaries collect
a death benefit if you die while covered. Unlike whole and universal life insurance, you
can invest your savings in one of several mutual funds, which often are managed by the insurance
company. True investment characteristics were introduced with these policies, requiring
that they be registered with the U.S. Securities and Exchange Commission. Policy investments
are controlled by the policyholder and may be placed in a broad range of equity, bond and
money-market instruments. Unlike universal life, premiums and death benefits are fixed in
variable life policies.
W
whole life insurance: A contract with both insurance and investment components: (1) It pays
off a stated amount upon the death of the insured, and (2) it accumulates a cash value that
the policyholder can borrow against or redeem. Life insurance in effect for the entire life
of the insured (provided premiums are paid). In most cases, no physical exam is required.
As its name implies, whole life insurance provides coverage for your entire life. People
you name as beneficiaries collect a death benefit if you die while covered. Unlike term
insurance, whole life insurance uses part of your premium payments to build up savings over
time.
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