You’ve been part of the life insurance game for a while; you know the ins-and-outs of annuities, the ups-and-downs of assets, and you know your policies and plans back-to-front. But if you?re going to guide clients who barely speak the language of life insurance through all they need to know, you?re going to need to make sure you?re a life insurance scholar. Here at SilverSide, we?re proud to offer the information and tools you need to become an expert in the life insurance industry.
13 Life Insurance Terms
Below are 13 important term from our life insurance glossary that you need to know!
- Adhesion: Adhesion to a pre-existing standard contract and its terms grants the party who buys life insurance special protection under the law. A policyowner forced into a contract of adhesion will find that the law most often interprets this contract to be in favor of the policyowner than the insurer.
- Aleatory Contract: Life insurance itself is an aleatory contract — it is a contract between two parties, in which one party pays a small amount in order to potentially receive a large amount upon the occurrence (or nonoccurrence) of an uncertain event.
- Banding: This is the organization of policies by premium, by which fewer policies are made less expensive than more policies of the same aggregate amount through the recovery of ongoing administrative and handling costs.
- Capital Conservation Method: This is a capital needs analysis method that assumes only the earnings on a principal amount (not the principal itself) will be used to satisfy the individual life insurance needs of a client.
- Capital Needs Analysis: This is a system for appraising a client?s life insurance needs by meeting these needs through the economic value and income-producing capabilities of current and future assets.
- Current-Assumption Policy: This type of policy reflects the insurer?s current interest, mortality, and expense experience directly, in cash value credits and charges rather than indirectly through dividends. While there is a minimum cash value guarantee, actual cash values accumulations are uncertain due to this reflection.
- Deposit Term Life Insurance: This form of temporary life insurance (usually sold in ten-year terms) is distinguished by its first-year premium (called a deposit), which is twice the amount of the annual premiums paid in the remaining years of the policy. What is important about the deposit is that if the insured dies before the end of the term, double the deposit is added to the death benefit; if the insured lives, double the deposit is returned when the term ends. These days, this type of policy is severely restricted or simply outright banned in most states.
- Fifth Dividend Option: Often the fifth-presented option for a dividend; if selected, the previous year?s dividend is used to purchase one-year term insurance at no commission or expense charge. This term insurance can be purchased up to a certain limit, which is often no more than the policy?s cash value, with the balance applied to at least one of the other options. The fifth dividend option is usually best for those looking to maintain level or increasing protection, to keep coverage high even if a policy loan has been taken out, or where the parties are involved in a split dollar arrangement.
- Intentionally Defective Grantor Trust: A trust with an intentional flaw that results in the grantor being taxed on all trust income, as income tax laws will not recognize that assets have been transferred away from them. This flaw technically runs afoul of the rules contained in sections 671 through 679 of the internal revenue code.
- Interest-Sensitive Whole Life: This type of traditional whole life insurance has fixed premiums and traditional nonforfeiture values, where interest is credited directly to the cash value at current rates.
- Joint and X-Percent Survivor Annuity: This type of annuity pays an income to two different people. If the principal annuitant dies first, a specified percentage (usually 100%, 75%, 66%, or 50%) of this joint income goes to the secondary annuitant for life. If the secondary annuitant dies first, the unreduced joint benefit goes to the principal annuitant for life. In its second-death form, the specified percentage of the joint income is paid to the survivor, regardless of who passes first.
- Persistency: This is the measure of policies sold by a life insurance agent that ?stay on the books,? and an indication of policy owner satisfaction with contracts, the amount of coverage they were sold, and their ability and desire to keep their policies over a long period of time.
- Secondary Guarantee Universal Life: Secondary guarantees can be attached to universal life policies in order to produce a product that guarantees a death benefit with the lowest possible premiums over the course of a limited period of time, or even for life. These are typically recommended for clients looking for an assured level of death benefit and who are unlikely to need lifetime benefits.
- Uniform Simultaneous Death Act: This law states that when an insured and beneficiary die at the same time, or when they die together and it cannot be determined who died first, it is presumed that the insured survived the beneficiary. The insurance company then pays the proceeds to the next beneficiary, or to the insured?s estate if the policyowner has not named a secondary beneficiary.
Life Insurance Glossary
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