Glossary

Bank

A bank is a financial institution that is responsible for managing and lending money. Banking, or the banking system, is the set of entities or institutions that, within a given economy, provide the banking service.

Beneficiary

Natural or legal person (for example, a trust) named in a life policy as the one who receives the benefits of the policy in the event of the holder’s death. This is the one who determines who the beneficiaries are.

Contingent Beneficiary

A contingent beneficiary will receive the benefits of the policy if all primary beneficiaries, named by the holder, have died at the time of the policy owner’s death. This one names the contingent beneficiary.

Irrevocable Beneficiary

It is a designated beneficiary that cannot be changed without their consent. It is sometimes used in insurance businesses or in divorce proceedings.

Primary Beneficiary

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

Revocable Beneficiary

It is the beneficiary that can be revoked or changed, without their consent, by the policyholder, at any time.

Death Benefit

It is the payment made to a beneficiary, either through an annuity or life insurance, when the policyholder dies.

Death Benefit of the Additional Insured

It is the policy that insures two lives (often husband or wife) with the benefits of the additional insured payable to the beneficiaries named by the latter.

Accelerated Benefits

Some benefits available, before death, to pay for the costs of expensive treatment or a terminal illness. Such benefits are included in certain life policies.

Benefits Paid During the Life of the Insured

These are the benefits available to the policy owner while the insured is alive. They include loans, transfers of collateral and the right, on the part of the insured, to receive benefits in the event of a terminal illness.

Accidental Death Benefits

It is a clause added to a life policy in order to pay an additional death benefit when it is caused by accident. This clause is very often also called “double indemnity”.

The percentage distribution is based on the percentages given to each beneficiary (which must total 100%). For example: 70% for María de Rodríguez, wife and 30% for Juan Rodríguez, son.

Declaration

When a client fills out their insurance application, it is presumed that all the information they have given to the insurance company is true, to the best of their knowledge and understanding. However, such information does not guarantee that it is accurate in each of its details.

Monthly Deductions

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

Right of Assignment

It is the right of the policyholder to assign the policy to another person, often as a means of guaranteeing a debt or obligation.

Key Executive-Insured Person

It is a life insurance purchased by a company for its key executive (or owner-employee) in order to indemnify the company in the event of financial loss due to the death of said executive.

Issue a Policy

In insurance, it is the decision of an insurance company to accept a client’s application and, therefore, issue the policy.

Equity

As an insurance principle, equity refers to a standard of fairness applied when establishing premiums and policy values. It is based on the premise that every insured with similar characteristics will be categorized under the same underwriting classification, pays the same premiums and receives the same policy values.

Medical Examination

It is the examination that is sometimes required in the underwriting process. It is the physical examination, done by a doctor, that determines the insurability of the person who wants to have life insurance. The results of said examination become part of the application and, therefore, part of the policy at the time of its issuance.

Exclusions

It is the clause, or clauses, that indicate circumstances or events, (the outbreak of a war, for example) that cause a benefit to be denied.

Waiver of Premium

A clause that can be added to a life insurance in which certain conditions may allow a policy to maintain all its protection without payment of premiums. This is frequently used in those policyholders who become permanently disabled, but may be available for other cases.

Life Expectancy

The average number of years remaining for a given group of people to live, at a specific age.

Life Insurance Trust

It is a trust established for the purpose of distributing life insurance benefits and, in many cases, removing the benefits from the insured’s estate in order to reduce taxes through that.

Irrevocable Trust

It is a trust that cannot be changed or canceled by the settlor.

Fiduciary (or)/Trustee

Natural or legal person authorized to control or manage assets, or a pension plan. Trustees are required by law to act solely and exclusively in favor of the beneficiaries. The trustee is liable for any action that is considered by the judges as a violation of the trust agreement.

Payment Method

It is the frequency and method with which a policy is paid. The standard payment methods of a premium are annual, twice a year, quarterly, monthly or automatic payments, through deductions from checking accounts, savings accounts or charges to the credit card.

Heir

Any person with the right to receive all or a portion of the estate left by its deceased owner.

Policy Illustration

Shows a likely scenario of policy performance. It illustrates on premiums, death benefits, account value, and information about other factors that may affect costs. The policy illustration is based on certain assumptions and may vary due to performance or changes in actual conditions, at a specific time. However, this document is not a life insurance contract.

Deferred Taxes

When some or all taxes are paid at a future date, instead of being paid in the same year the income is generated. Tax-deferred investments refer in particular to retirement accounts, which allow deferring the tax burden on contributions, returns or both. Taxes are not paid until the withdrawal of funds during retirement.

Indemnification

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

Lifetime Income

Pension, annuity or the payment option of a life insurance that guarantees the insured a lifetime income.

Jurisdiction

Power that judges and courts have to judge and execute what has been judged, in a specific country or political division.

Claims Settlement

It is the payment of a claim, in accordance with the provisions of the policy.

Morbidity

It is the term that refers to the frequency with which a disease occurs. As an underwriting concept, it refers to the potential disease of a specific population, generally determined by age.

Mortality

The incidence of death in proportion to a specific population.

Natural Death

Death occurring for reasons other than an accident, murder or suicide.

Negligence

Careless or inattentive conduct of a person, in carrying out an activity and that may cause damage or cause it to a third party.

Notification

Fundamental obligation of the insured to communicate to their insurance entity the occurrence of the claim whose risk was covered in the policy.

Settlement Options

It is one of many ways, other than full or immediate payment, in which the insured or beneficiaries can choose the payment terms of the policy.

Grantor

It is the person who transfers the property.

Estate

The assets owned by an individual at the time of their death.

Gross Estate

It is the wealth and property accumulated by an individual at the time of their death.

Accumulation Period

In an annuity, it is the period between the purchase of the deferred annuity and the beginning of the payment period of said annuities.

Grace Period

It is a period of time determined by the insurance company, which follows the premium payment deadline (other than the date of the first payment notice) during which the payment that is overdue can be made. During this period, all the clauses of the policy remain in effect.

Policy Period

It is the term during which the policy is in effect.

Verification Period

It is the period of time (usually two years after the issuance of the policy or increases in the insured amount) during which the insurer has the legal right to verify the veracity of the data provided during the underwriting of the policy, either because there is falsehood or because the information provided by the client is incomplete. Upon expiration of the verification period, the insurance company will not object to the payment of the death benefit unless fraud is discovered on the part of the owner or the insured; or that the death was caused by an event excluded from the policy.

Estate Planning

It is the process aimed at managing, in an orderly manner, the administration and distribution of an estate upon the death of its owner. Depending on the size of the estate and the client’s objectives, estate planning should include its conservation and multiplication for the enjoyment of the heirs, and should also create all the mechanisms to prevent said estate from being diminished.

Policy

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

Yearly Renewable Term Policy

It is a term policy with a level death benefit, which can be renewed each year, generally up to a certain age limit (often 65 years).

Single Premium Payment Policy

With life policies or annuities, it is a contract in which the payment of premiums is established, in a single payment, at the beginning of the policy’s term. No additional premiums are required.

Flexible Premium Policy

It is a life policy in which the policyholder has the option of paying a higher or lower amount of the premium cost (maximums and minimums apply). This contrasts with total life policies, through which the premium is fixed at the time of policy issuance.

Policyholder

The individual or entity that has ownership of the policy and all its rights.

Loan

In life insurance, money borrowed with interest by the insurance company, against the policy owner’s account value. The policy’s account value is used as collateral for the loan. These loans affect death benefits.

Automatic premium loan

A life insurance clause stating that any unpaid premium at the end of the grace period (usually 30 or 31 days) can be paid automatically through a policy loan, as long as there are sufficient funds in the account value.

Premium

The payment, or one of the regular payments, that a policyholder makes to their own life insurance policy.

Additional premium

Life insurance premiums that can be applied directly to purchase additional coverage or to increase the account value. It also refers to money added to or deposited in an annuity.

Level premium

A premium that does not change over the life of the policy. With whole life policies, the premium remains level for the life of the insured. With level term insurance policies, premiums remain level for the duration of the policy and will increase with each renewal, or at the start of each term.

Premium loan

The amount of money borrowed from the account value to pay an overdue premium.

Premium payment schedule

The premiums established in the policy at the time of issue.

Prospectus

For investment products (including variable life insurance and annuities), the prospectus is a written document that explains costs, features, investment portfolio objectives, and other details. The client must be given a copy of this document before purchasing mutual funds, variable life, and variable annuities, and should read it carefully before making investments or sending money.

Provision

A term or condition of an insurance policy contained in the clauses of a policy.

Evidence of insurability

Evidence that establishes whether or not a client can have life insurance. This evidence is generally obtained through medical certificates and financial statements. In many cases, a complete medical examination is required.

Evidence from the potential insured

Insurance companies require a potential insured to provide medical examinations such as blood pressure, cholesterol, among others, before purchasing individual insurance.

Reinstatement

The reissuance of a policy that was suspended for non-payment. The insurance company may request new documents from the policyholder and payment of past due premiums plus accrued interest.

Renewal

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

Surrender

The amount of the account value less the surrender charge, expenses, loans, and any debt, that is given to the owner upon cancellation of their policy.

Restrictions

Limitations or exclusions in a policy.

Risk

The possibility of loss. In life insurance, it means the probability of death. In relation to securities, the term refers to the potential gain or loss involved in the performance of an investment. Other related risks include the risk of inflation eroding the purchasing power of savings and the risk of depleting retirement savings.

Preferred risk

A person whose physical condition, occupation, personal habits, hobbies, and other characteristics indicate a potential for great longevity. If a client meets the conditions for preferred risk, they may obtain a lower premium rate than a person with an average risk.

Term insurance

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

Renewable term insurance

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

Group insurance

Insurance issued under a master contract that offers coverage to a preselected group (e.g., employees of a company, members of an association). Coverage is offered to all qualified individuals in the group, regardless of individual insurability considerations.

Life insurance

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

Adjustable life insurance

A type of life insurance that allows you to change coverage, increase or decrease the value of the policy, premiums, and the length of the protection period.

Permanent life insurance

Insurance designed to provide protection throughout life. As long as all necessary premiums are paid, death benefits will be delivered. Most permanent policies have an account value that builds up, tax-free, during the life of the policy and can be used for financial goals, such as retirement or educational expenses.

Whole life insurance

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

Universal life insurance

Permanent life insurance characterized by flexible premiums and face amounts, and growing savings.

Variable life insurance

A form of whole life insurance that combines the flexible premiums and death benefits of universal life insurance with the flexibility and risk of investments in variable life insurance.

Personal insurance

Coverage purchased to meet individual or family needs, as opposed to business purposes.

Level term insurance

The values of these insurances do not change from the day the policy becomes effective until the date it expires.

Risk selection

In insurance, the process that determines under what terms of coverage a policy is issued. The term “underwriting” is also used.

Supplement

An attachment or amendment made to an insurance policy that expands or adds benefits.

Underwriting

The process of selecting the risk for insurance and determining what amounts and on what terms the insurance company will provide coverage to the client.

Underwriter

The employee of an insurance company who reviews the application and makes underwriting decisions.

Rate, premium

The established cost of insurance. It is generally given in terms of the price per thousand dollars of coverage (e.g., $1.25 per $1,000).

Morbidity rate

The frequency with which a disease affects a certain number of people, from a given group and during a specific period of time.

Policy termination

Occurs when an insurance policy is canceled for non-payment of overdue premiums at the end of the grace period.

Will

A document containing a person’s wishes regarding how their assets should be distributed upon their death.

Estate transfer

The process of distributing the assets of an estate, either during the life of the owner of that estate or after their death.

Probate

The court-supervised process of validating a will or establishing the distribution of assets to a descendant.

Policy value

The death benefit of the life insurance policy. This amount is not necessarily the same as the death benefit paid when the insured dies. This benefit may be higher if there are higher returns or if additional coverage has been purchased. It may be lower if loans have been made against the policy and have not been covered.

Surrender value

The cash amount available at the time of surrender of a permanent insurance policy.

Present value

The amount that, if invested at a certain interest rate, will accumulate a specific sum on a future date.

Total accumulated value

The value accumulated to a specific date. When surrendering this policy, its value may be reduced due to surrender charges, additional costs, or debts for a loan.

Verification

In insurance, it refers to the right of the insurance company to question or challenge the veracity or accuracy of the information given by the applicant.