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1035 Exchange

A tax-free method of exchanging an existing life insurance policy or annuity contract for a new one. The exchange is not taxable and the tax cost basis of the old contract is carried over to the new one. The exchange must meet the requirements of Section 1035 of the Internal Revenue Code for the transaction to be tax-free.

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Absolute Assignment

The transfer of all incidents of ownership of a policy to a separate entity. The Assignee becomes the new owner, of course.

Accidental Death Benefit (ADB)

A rider or supplemental benefit that provides an additional death benefit if death of the insured is by accidental means. The amount of additional death benefit provided is generally equal to the face amount of the policy to which it is attached.

Accumulated Value

Generally, a life insurance policy's accumulated value is the cash value plus any dividend value (including interest). For an annuity, the accumulated cash value is generally the amount of contributions plus any interest earned less withdrawals.

Annuitant

The person (or persons) whose life (or lives) determines the income payment benefits payable under a contract and whose death determines the death benefit.

Annuity

A contract sold by a life insurance company in which an insured makes contributions into a fund that can then be withdrawn in a lump sum or a series of future payments.

Assignee

The person receiving certain rights to a policy under an absolute or collateral assignment.

Automatic Premium Loan (APL) Provision

A life insurance provision that allows an unpaid premium to be paid in the form of a loan against the policy's cash value at the end of the payment grace period.

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Beneficiary

An individual designated to receive the proceeds from an insurance policy, retirement account, trust or other asset.

Benefit Period

For a disability income policy, the length of time that a disability income benefit will be paid.

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Cash Value

The monetary worth of an insurance policy. The amount of cash available to the owner when a policy is surrendered to the life insurance company. Most of the cash value is also available to policy owners in the form of policy loans.

Collateral Assignment

The pledge of a life insurance policy as security for the repayment of a loan, which provides the assignee with rights to the extent of the obligation owed to the assignee.

Contingent Beneficiary

The secondary beneficiary who will receive policy proceeds only if the Primary Beneficiary is no longer living.

Cost Basis

For an insurance policy, the amount equal to the total net premiums paid plus accumulated dividends earned minus certain specified costs. This is used for tax purposes when calculating taxable gains.

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Death Benefit

The proceeds or benefit that is payable to the beneficiary of a life insurance contract upon the death of the insured.

Deferred Annuity

An annuity contract established with a single premium or a series of payments left to accumulate on a tax-deferred basis over a period of years until needed as income through a series of payments in the future.

Dividend Option

The policyowner's choice for use of the dividend. In participating policies, the dividend can accumulate at interest, reduce the premium, purchase additional paid-up insurance, or be taken in cash.

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Evidence of Insurability

Statements and representations regarding an insured's or prospective insured's state of health, life style, and financial condition that might affect insurance acceptability.

Extended Term

A non-forfeiture option on whole life insurance which allows coverage to be extended for a limited time period by using the policy's cash value to purchase temporary term insurance equal to the face amount of the original policy.

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Face Amount

The original death benefit on a life insurance policy.

Family Benefit

A rider that provides insurance coverage for an insured's spouse and children.

Fixed Period Annuity

An annuity that provides payments for a specified period of time, for example 10 years. At the end of the fixed period duration, all funds have been distributed.

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Grace Period

A specified number of days between a premium's due date and the date the policy will lapse if the premium is still unpaid. If the insured dies during the grace period, the unpaid premium is deducted from the policy proceeds.

Guaranteed Insurability

A rider that provides the policyowner the right to purchase a certain amount of additional insurance coverage at specified ages without providing evidence of insurability.

Guaranteed Purchase Option

A rider that provides the policyowner the right to purchase a specified amount of insurance coverage similar to the original policy without providing evidence of insurability.

Guaranteed Renewable

The right given to a policyowner to continue insurance coverage (non-cancellable) as long as the premium is paid; however, the insurance premium could increase.

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Immediate Annuity

An annuity contract which is purchased with a single premium or annuity contribution and payments begin within 1 year after the initial premium payment.

Insured

The person whose life is covered by the insurance contract.

Irrevocable Beneficiary

A beneficiary whose right to policy proceeds cannot be cancelled by the policyowner without the irrevocable beneficiary's consent.

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Juvenile Insurance Policy

Life insurance purchased by an adult that covers the life of a minor.

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Life Income with Period Certain Annuity

A type of annuity contract which provides periodic income payments for a specified number of years. If the annuitant dies before the end of the period certain, the beneficiary receives the payments for the balance of the period certain duration.

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Non-Forfeiture Provisions

Privileges allowed under the terms of a life insurance contract after cash value has been created. Options include: 1) surrender for full cash value; 2) paid-up insurance for however much the cash value will purchase; and 3) term insurance for the full face amount.

Non-Participating

life insurance policy which is not eligible for the distribution of dividends paid out of the surplus earnings of the company. A type of annuity in which the contributions have already been taxed by the government and are not deductible on individual taxes.

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Paid-Up Additions

Paid-up insurance, commonly purchased under a dividend option. These additions have cash value as well as a death benefit.

Participating

A life insurance policy whose owners are eligible to share in the distribution of dividends paid out of the surplus earnings of the company.

Pay-Out Option

The payment method selected for an annuity by the annuitant to receive a series of periodic income payments.

Pay-Out Phase

The stage in which an annuitant or beneficiary begins distribution of an annuity/'s accumulated assets plus earnings. The annuitant can elect to have the cash distributed on a regular basis over a specified period of time or for the remainder of his or her life.

Period Certain

The pay-out option on an annuity that will provide a guaranteed installment income for a specific number of years. If the annuitant dies during this time, the beneficiary receives the remaining payments.

Policy Dividend

An amount of unused premium paid back to the policyowner by the insurance company. The dividend amount is not taxable, unless total dividends received exceeds the total premiums paid; however, interest earned on dividends on deposit is always taxable.

Power of Attorney

A written instrument granting someone authority to act on behalf of another person.

Primary Beneficiary

The person who, upon the insured's death, has the first right to receive insurance proceeds.

Prospectus

A legal document that describes the main features, investment vehicles and administration procedures of a registered investment product.

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Qualified Annuity

An annuity contract that is purchased with pretax dollars in a tax-qualified plan and is exempt from current income on both the original investment and interest earnings until funds are withdrawn.

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Reduced Paid-Up

A non-forfeiture option in which the cash surrender value is used to purchase paid-up insurance with no future premiums payable. The death benefit is lower than that provided if the premiums were continued.

Reinstatement

The process to restore a policy that had previously lapsed due to nonpayment of premiums. Reinstatement requires the submission of evidence of insurability and unpaid premiums plus interest.

Replacement

A transaction in which new insurance coverage is to be purchased and an existing policy or contract is lapsed, forfeited, surrendered, partially surrendered or otherwise amended as a result of the transaction.

Revocable Beneficiary

A type of beneficiary designation that can be changed at the policyowner's request without the current beneficiary's approval or knowledge.

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Settlement Options

Policy provisions which provide choices for the distribution of the policy's proceeds. Choices include: lump sum, specified number of years, or life long payment plans.

Surrender Charge

A provision in which a certain percentage of a policy or contract's accumulated value is subtracted from the surrender proceeds if a policy is cancelled within a specific number of years following issuance of the policy or contract.

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Term Conversion

The right to convert a term policy to a permanent plan for the equivalent amount of coverage without having to provide additional evidence of insurability.

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Variable Annuity

A form of annuity contract, sold by life insurance companies, that allows the contract owner to select the investment funds and assume the investment risk. Variable annuities guarantee a payment; however, the amount of the payout will vary according to the performance of the underlying funds.

Variable Life Insurance

A type of whole life product in which the death benefit and the cash value change according to the investment performance of the underlying funds.

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Waiver of Premium

A rider or supplemental benefit by which an insurer agrees to waive premium payments if the policyowner meets the terms of disability stated in the contract.

Withdrawal Charge

The amount deducted from the accumulation or account value of a policy if a withdrawal occurs within a specific number of years following policy issue.

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Yearly Renewable Term

A type of life insurance where the contract is renewed each year with a premium payment. It is common for the renewing premium amount to increase annually.