Glossary

Glossary
 
A
Accidental death benefit
A clause added to a life insurance policy, which pays an additional death benefit when death is caused by an accident. This clause is also known as “double indemnity”.


Accumulation period
In an annuity, it is the period between the purchase of a deferred annuity and the beginning of annuity payments.


Adjustable life insurance
A type of life insurance that makes it possible to change coverage, and to increase or decrease the value of the policy, the premiums and length of the period of protection.


Advance benefits
Benefits available before death, which cover the cost of an expensive treatment or a terminal illness. These benefits are included in certain life insurance policies.


Agent
An authorized representative of StateTrust Life & Annuities who sells insurance, contracts and services.


Agreement options
The many ways, other than total or immediate payment, in which the insured or their beneficiaries can choose the payment terms for a policy.


Amount of income received
The amount of income scheduled to be paid under an annuity contract.


Anniversary of a policy
The anniversary of the date on which a policy was issued.


Annuity
A contract with an insurance company that makes it possible to save for the future on a tax-deferred basis. It also makes it possible to choose a payment option that covers an individual’s income requirements. That payment option can be a specific sum for life or for a specified period of time.


Application
A document used to request the issuance of an insurance policy. The customer submits the application to the underwriter, and decides whether to accept the policy. Once this process is completed, the policy is issued.


Appraisal
In the life insurance world, this is the valuation of a policy’s reserve. It is also the process of determining the value of a business or a property.


Assignment of policy
The legal transfer of an insurance policy from one person to another.


Automatic premium loan
A clause in a life insurance policy, which establishes that any unpaid premium at the end of the grace period (usually 30 or 31 days) can be paid automatically by means of a loan against the policy; only applicable if there are sufficient funds in the value on account.


B


Bank
A bank is a financial institution that is responsible for managing and lending money. The banking system is a group of firms or institutions which offer banking services within a given economy.


Beneficiary
An individual or a legal entity (a trust, for example) named in a life insurance policy as a recipient of the policy’s benefits in the event of the owner’s death. Beneficiaries are selected by the policy owner.


Benefits paid during the life of the insured.
Benefits available to the policy owner while he/she is still living. These include loans, transfers of collateral, and the insured’s right to receive benefits in the event of terminal illness.


C


Cancellation
The termination of a contract either for non-payment of premiums at the end of the grace period, or due to the customer’s wishes.


Change of beneficiary clause
A clause that allows for a change of beneficiary at the discretion of the policyholder, unless the designated beneficiary is irrevocable. It is advisable to review the designation of beneficiaries occasionally, to ensure that they reflect the policy owner’s current situation and wishes.


Commission
A percentage of the premium paid to an agent by the insurance company as a form of compensation.


Commitment
In insurance, a document in which the insured makes a commitment to the insurance company to comply with certain rules. Breaking any one of these rules can invalidate the policy.


Contingent beneficiary
A contingent beneficiary will receive the benefits of a policy if, when the owner dies, all of the primary beneficiaries named by the owner have died. A contingent beneficiary is named by the policy owner.


Contract
In insurance, a contract is another name for a policy. The issuance of an insurance policy or an annuity with the application attached constitutes a contractual agreement between the insurer and the policyholder.


Conveyance of an estate
The process of distributing the property of an estate either during the estate owner’s life or after his/her death.


D


Death benefit
The payment made to a beneficiary either through life insurance or an annuity, when the policyholder dies.


Death benefit of additional insured
A policy that insures two lives (often husband and wife), with the benefits of the additional insured payable to the beneficiaries named by the latter.


Declaration
When a customer fills out an insurance application, it is assumed that all information given to the insurance company is true; according to the best of his/her knowledge and belief. However, this does not guarantee that the information is exact in every detail.


Deferred annuity
An annuity where payments begin on a future date.


Deferred annuity with flexible premium
An annuity contract that makes it possible to vary the amount and frequency of premium payments (year after year) for payments that will occur in the future.


Deferred compensation
An agreement through which current salaries or future increases in salary are not taken immediately, but are postponed until a future date, which may be the date of retirement. Life insurance can be utilized to finance the plan, which pays retirement benefits to the employee or death benefits to the employee’s beneficiaries.


Deferred taxes
When all or some taxes are paid at a future date, instead of in the year during which the income was generated. Investments with deferred taxes are particularly applicable to retirement accounts, which allow the deferral of taxes on contributions, returns, or both. Taxes are not paid until the funds are withdrawn during retirement.


Donor
The person who transfers property.


E


Equity
As a principle in insurance, equity refers to a standard of justice applied when establishing premiums and policy values. It is based on the premise that all insured persons with similar characteristics will be categorized under the same underwriting classification, pay the same premiums, and receive the same policy values.


Estate
The assets an individual owns at the time of his/her death.


Estate distribution agreement
The process of distributing the estate of a deceased owner. First, all debts and taxes are paid, and then the remaining property is transferred to the heirs.


Estate planning
A process directed toward orderly handling of the administration and distribution of an estate when the owner dies. Depending on the size of the estate and the customer’s goals, estate planning should include preservation and growth of the estate for the enjoyment of the heirs, and should also establish all the means for avoiding a reduction in the size of that estate.


Exclusions
A clause or clauses indicating the circumstances or events (the outbreak of war, for example) that are not covered under the policy contract.


Executor
A person, not an institution, who has been named to carry out the intentions of a will. The executor has various responsibilities and his/her actions involve a certain degree of legal responsibility.


Exemption from premium
A clause that can be added to a life insurance policy, which provides that under certain conditions, a policy can maintain all its protection without the payment of premiums. This clause is frequently utilized for policyholders who have become disabled for life, but it may be used in other cases.


F


Final costs
Costs related to the death of an estate owner, which must be covered before distribution of his/her assets. Final costs may include funeral expenses, debts, taxes and other unpaid expenses.


Fixed annuity
An annuity that has fixed payments and fixed earnings at a guaranteed rate of return on the value on account. This contrasts with variable annuities, in which gains or losses are accumulated depending on the performance of investments chosen by the policyholder.


Fixed premium
A premium that does not change throughout the life of the policy. With whole life policies, the premium remains fixed during the life of the insured. In term policies with fixed insurance, the premiums remain fixed for the duration of the policy, and are increased with each renewal, or at the beginning of each term.


Form of payment
The frequency and method by which payments are made to a policy. The standard modes of premium payment are annually, twice a year, quarterly, monthly or by means of automatic payments through deductions from checking accounts, savings accounts, or charges to a credit card.


G


Grace period
An interval of time, as determined by the insurance company, during which an overdue payment can be made after the payment deadline for a premium (as distinct from the date of the first payment notice). During this period all clauses of the policy remain in effect.


Grantee
The person to whom property is transferred.


Gross estate
The accumulated wealth and property of an individual at the time of his/her death.


Group or collective insurance
An insurance policy issued under a master contract, which offers coverage to a pre-selected group; for example, the employees of a company or the members of an association. Coverage is offered to all eligible people in the group, regardless of any individual considerations of insurability.


H


Heir
Any person with the right to receive all or part of a deceased owner’s estate.


I


Immediate annuity
Immediate payment of an annuity or payment within one year.


Income for life
A pension, annuity or a life insurance option that guarantees the insured an income for life.


Indemnification
The compensation for loss. In life insurance, the insurer agrees to pay the beneficiaries a specific sum (death benefit) to indemnify them for financial losses resulting from the death of the insured.


Indexed annuity
A type of fixed annuity. With an indexed annuity, money accumulates on a tax-deferred basis, with a set minimum rate of return. A customer’s account can also earn additional interest based on the performance of the indexes, the most important of which is the S&P (Standard & Poor’s) 500.


Insufficient coverage
The situation where insurance coverage does not meet the needs of an individual or a company in the event of death.


Insurability
The circumstances under which an insurance company can issue a policy to a customer who applied for a specific plan.


Insurance certificate
If a customer is insured under a group policy, the certificate summarizes the benefits and the main clauses of the master policy.


Insured
The person or persons protected by an insurance policy or by another plan.


Insurer
The insurance company.


Irrevocable beneficiary
A designated beneficiary who cannot be changed without his or her consent. This is sometimes used in insurance dealings or in divorce proceedings.


Irrevocable trust
A trust that cannot be changed or cancelled by the grantor.


Issue a policy
In insurance, it is an insurance company’s decision to accept a customer’s application, and consequently, issue a policy.


J


Joint and survivorship annuity
An annuity in which payments are made during the customer’s life and after his/her death to the surviving designated beneficiaries for the rest of their lives.


K


Key executive – insured person
Life insurance bought by a business for its key executive (or owner-employee), to compensate the company in the event of financial loss due to that executive’s death.


L


Life expectancy
The average number of years of life remaining for a specific group of people of a certain age.


Life insurance
A contract between a person, known as the insured/owner, and an insurance company to protect the insured/policy owner against economic loss caused by death.


Life insurance trust
A trust established for the purpose of distributing life insurance benefits, and in many cases, to transfer earnings out of an insured person’s estate at lower tax rates.


Lifetime annuity
An annuity that is paid during the life of the insured, regardless of the number of years he/she lives.


Loan
In life insurance, money lent at interest by the life insurance company against a policy owner’s value on account. The value on account of the policy is used to guarantee the loan. Such loans affect death benefits.


M


Medical examination
As part of the enrollment process, a physical examination to determine the insurability of a person who wants life insurance.


Monthly deductions
In a variable or universal insurance policy, these are costs deducted from the value on account to cover administrative expenses, the cost of insurance, and premiums for supplements and additional benefits.


Morbidity
A term that refers to the frequency with which a disease occurs. As an underwriting concept, it refers to a specific population’s potential for illness, usually determined by age.


Morbidity rate
The frequency with which an illness affects a certain number of people in a given group during a specific period of time.


Mortality
The incidence of death in relation to a specific population.


Mortality cost
In a life insurance policy, the cost of protection during a specified period of time. In a variable life insurance policy, for example, a mortality cost is deducted from the value on account every month.


N


Natural death
Death for reasons other than accident, homicide, or suicide.


O


P


Permanent life insurance
Insurance designed to give protection during an entire life. As long as all the necessary premiums are paid, death benefits will be paid. Most whole life policies have a value on account, which is built up on a tax-exempt basis over the life of the policy; and can be used for financial purposes such as retirement or education expenses.


Personal insurance
Coverage that is bought to satisfy individual or family needs and not for business purposes.


Policy
A written document or contractual agreement between an insurer and a policyholder. This includes all supplements and exceptions. It is also known as a “contract” or the insurance policy.


Policy illustration
Shows a probable scenario of the performance of a policy. Gives examples of premiums, death benefits, value on account, and information about other factors that might affect costs. The illustration is based on certain assumptions, and they may vary due to events and changes in actual existing conditions at a certain time. Nevertheless, this document is not a life insurance contract.


Policy period
The term during which a policy is in effect.


Policy value
The death benefit of a life insurance policy. This is not necessarily the same amount as the death benefit which is paid when the insured dies. That can be more, if there are higher returns or if additional coverage has been purchased. It can be less when there are loans against the policy, which have not been repaid.


Policy with flexible premium
A life insurance policy in which the policyholder has the option of paying a higher or lower premium amount (maximums and minimums apply). This contrasts with total life policies, in which the premium is fixed when the policy is issued.


Policy with single premium payment
In life insurance policies or annuities, a contract in which payment of only one premium is established when the policy first comes into effect. No additional premiums are required.


Policyholder
An individual or entity who owns a policy and all of its rights.


Preferred risk
A person whose physical condition, occupation, personal habits, pastimes and other characteristics indicate the potential for considerable longevity. If a customer meets the conditions of a preferred risk, he/she may obtain a lower premium than a person who is considered an average risk.


Premium
The payment, or one of the regular payments, that a policy owner makes to his/her own life insurance policy.


Premium loan
The amount of money obtained as a loan from the value on account in order to pay an overdue premium.


Present value
The amount which a specific sum would accumulate at a future date if it is invested at a certain interest rate.


Primary beneficiary
The person or entity who has the first right to receive life insurance benefits when the insured dies. If the primary beneficiary dies, benefits will be paid to the surviving primary beneficiaries, and if there are none, benefits will be paid to the designated contingent beneficiaries.


Probate
The court-supervised process of validating a will or providing for the distribution of property to a descendant.


Proof of insurability
The facts that make it possible to establish whether or not a customer can have life insurance. In general, this evidence is obtained through medical certificates and financial statements. A complete medical examination is required in many cases.


Prospectus
For investment products, the prospectus is a written document that explains the costs, characteristics, objectives and other details of an investment portfolio. A copy of the prospectus must be given to a customer before the purchase of mutual funds, and the customer should read it carefully before making investments or sending money.


Provision
A term or a condition of an insurance policy as stated in the clauses of the policy.


Purchase – sale agreement
A legal agreement between several owners or one owner and a key employee, which provides that if one of the owners dies, his/her business will be purchased by the designated survivors. Life insurance is frequently used to ensure that money is available for that purchase.


Q


R


Rate, premium
The cost of an insurance policy. It is usually given in terms of the price for each thousand dollars of coverage, for example, $1.25 for each $1,000.


Reinstatement
The reactivation of a policy that was suspended for non-payment. The insurance company can ask the policyholder for new documents and payment of overdue premiums plus interest.


Renewable term insurance
A term insurance policy under which the policyholder has the right, at the end of the term, to continue coverage for another term with a premium that is established according to the policyholder’s age.


Renewal
The payment received on each policy anniversary date in order to continue the policy.


Restrictions
Limitations or exclusions in a policy.


Revocable beneficiary
A beneficiary who can be revoked or changed at any time by the policyholder.


Right of assignment
The right of a policyholder to assign a policy to another person, often as a means of guaranteeing a debt or an obligation.


Risk
The possibility of loss. In life insurance, risk means the probability of death. With regard to securities, the term refers to the potential for gains and losses due to the performance of an investment. Other risks include the risk of inflation, which erodes the purchasing power of savings, and the risk of using up one’s retirement savings.


Risk selection
In insurance, the process that determines the terms under which a policy is issued. The term “underwriting” is also used.


S


Schedule of premium payments
The premiums established in the policy when it is issued.


Separate account
Refers to variable insurance products which offer investment portfolios within insurance policies or annuities. Insurance companies are required to keep these assets separate from their general assets.


Supplement
An attachment or an amendment to an insurance policy, which expands or adds benefits.


Surrender
The value on account, minus a surrender charge, expenses, loans and any debts; which is turned over to the owner when his/her policy is cancelled.


Surrender charge
Money deducted from the value on account when determining the surrender value.


Surrender value
The amount of cash available when an insurance policy is surrendered.


T


Term insurance
Life insurance coverage for a specific period of time. The policy pays death benefits only if the insured dies during the term of the insurance, which can be up to 30 years.


Term policy renewable every year
A term policy with a fixed death benefit which can be renewed every year, ordinarily up to a certain age limit (often 65).


Termination of a policy
This occurs when an insurance policy is cancelled for non-payment of overdue premiums at the end of the grace period.


Tests for potential insured
Insurance companies require that a candidate for insurance furnish the results of medical tests such as blood pressure and cholesterol, among others, before buying individual insurance.


Total accumulated value
The accumulated value on a specific date. When a policy is surrendered, its value can be reduced because of the surrender charge, additional costs, or debts in the form of loans.


Trustee/fiduciary
An individual or a legal entity authorized to administer or control the pensionable assets of a pension plan. Trustees are obligated by law to act only and exclusively in favor of the beneficiaries. A trustee is responsible for any action that a court may consider to be a violation of the trust agreement.


U


Underwriter
An insurance company employee who reviews applications and makes underwriting decisions.


Underwriting
The process of risk selection for an insurance policy, and of determining what amounts and under what terms the insurance company will provide coverage to a customer.


Universal life insurance
Permanent life insurance which features, in addition to savings growth, flexible premiums and insured amount.


V


Value on account
The amount in the account before payment is made in the event of the death of the owner or when the insurance policy expires.


Variable annuity
An annuity in which future earnings or losses are based on the performance of investments selected by the policy owner.


Variable life insurance
A form of whole life insurance which combines the flexible premiums and death benefits of universal life insurance with the flexibility and investment risk of variable life insurance.


Verification period
A period of time (usually two years after the issuance of a policy or an increase in the amount of insurance) during which an insurer has the legal right to verify the reliability of information provided during the underwriting of a policy, because of either false or incomplete information submitted by the customer. When the verification period expires, the insurance company will not object to paying the death benefit unless fraud has been discovered on the part of the owner or the insured, or the death was caused by an event that is excluded from the policy.


W


Whole life insurance
The most common life insurance. Premiums generally remain constant over the life of the policy and must be paid periodically in a specified amount.


Will
A document which contains a person’s wishes about how his/her estate should be distributed when he/she dies.


X


Y


Z