MOST COMMON TERMS

Human Life Value: One method of determining how much insurance a person should own is to measure his or her "human life" value, an estimate of the present value of a person's remaining economic worth. In general terms, this projects future net after-tax salary and other earnings, reduces them by future expenses, and then discounts these future net values at interest to determine a lump-sum present value.

Immediate Annuity: An annuity contract that pays the annuity at the end of each period of payment. The interval may be monthly, quarterly, semiannually or annually.

Increasing Term Insurance: Term life insurance coverage that increases in face value each year (or certain period) from the date of policy issue to the date of expiration. (For contrast, see: decreasing term insurance and level term insurance.)

Individual Life Insurance: Life insurance contract that covers only one insured, but that may sometimes cover several people, such as the members of a family, through the use of riders. The term "individual" is often used to distinguish this type of life insurance from group life insurance.

Insurability: The term insurability encompasses all conditions pertaining to an individual that affect his or her health, susceptibility to injury, as well as life expectancy and other factors considered by the insurer in its underwriting and rating process. If the risk is too high, the insurance company will refuse coverage.

Insurable Interest: A person who has a reasonable expectation of benefiting from the continuance of another person's life or of suffering a loss at his or her death is said to have an insurable interest in that life.

Insured: The individual or group covered by the contract of insurance.

Interest-Only Option: A settlement option under which all or part of the proceeds of a policy are left with the insurance company for a definite period at a guaranteed minimum rate of interest. Interest may be paid (usually subject to certain minimums) annually, semiannually, quarterly or monthly-or, in some cases, may be added to the proceeds left with the insurer.

Interest-Sensitive Whole Life: A traditional whole life policy with fixed premiums and traditional nonforfeiture values where interest is credited directly to the cash value at current rates. Often used somewhat erroneously to refer to current-assumption policies. Generally loads, mortality costs, and interest credits are separately stated. The cash value of the policy is the greater of this fund less surrender charges, and the guaranteed cash values.

Joint Life Annuity: A life annuity payable to two or more annuitants which continues payments until one of the two annuitants dies.

Level Premium: A life insurance premium that remains fixed through the life of a policy. It must be large enough so that in early years the insurer will develop a surplus large enough so that in later years - together with interest and future premiums - there will be enough to pay all death claims.

Level Term Insurance: Term life coverage on which the face value remains the same from the date the policy is issued to the date the policy expires. (For contrast, see: decreasing term insurance; increasing term insurance.)

Life Annuity: An annuity contract that pays only until the annuitant dies. Payments cease at that time even if the amount paid by the insurer does not equal the total premiums paid by the annuity owner.

Life Expectancy: The average remaining term of life for a number of persons of a given age, according to probability statistics of a mortality table.

Life Income Option: One of the settlement options under which the proceeds of a life insurance or annuity policy may be applied to buy an annuity payable to the beneficiary for life.

Life Income With Period Certain Option: A life insurance proceeds settlement option that will pay at least a minimum specified number of periodic installments in a guaranteed amount whether the named beneficiary lives or dies.

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Limited-Payment (limited-pay) Policy: A live insurance policy that provides for payment of the premium for a period of years less than the period of protection provided under the contract.

Minor Beneficiary: A beneficiary who is under the state's legal age of majority and, thus, not considered competent to make certain financial transactions on his or her own. A legal guardian must be appointed to accept death benefits on behalf of a minor beneficiary.

Misstatement Of Age: Giving the wrong age for oneself in an application for insurance or for a beneficiary who is to receive benefits on a basis involving a life contingency. Also, a provision in most life policies setting forth the action to be taken if a misstatement of age is discovered after policy issue.

Mortality Table: A table of the mortality experience of groups of individuals categorized by age and sex that is used to estimate how long a male or female of a given age is expected to live. Some tables are required to be unisex, i.e., those used for actuarial calculations involving qualified pension plans. The mortality table is the primary starting point for calculating the risk factor, which in turn determines the gross premium rate.

Mutual Company: A life insurance company that has no capital stock or stockholders. Rather, it is owned by its policyowners and managed by a board of directors chosen by the policyowners. Any earnings in addition to those necessary for the operation of the company and contingency reserves are returned to the policyowners in the form of policy dividends. (For contrast, see: stock company.)

Nonconvertible Term Insurance: A term policy that may not be converted to a permanent policy.

Nonforfeiture Values: Those values or benefits in a life insurance policy that by law, the policyowner doe not forfeit, even if he or she chooses to discontinue payment of premiums. It usually includes cash value, loan vale, paid-up insurance value, and extended term insurance value.

Nonparticipating Life Insurance: So called "non par" life insurance does not pay policy dividends. The policyowner is not in any way an owner and therefore is not entitled to share in any divisible surplus of the company. Any profits from the excess of the premium over the costs of insurance accrue to the nonpar company's stockholders which is fair since they would be the ones to absorb any losses. (For contrast, see: participating insurance.)

 

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