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Common Terms in the Insurance Industry
Accidental Death Benefits or Double Indemnity Benefit (Optional Rider) - An additional benefit paid in case of death by accident (quite often equal to face amount, hence “double” indemnity). Your family doesn’t need any more insurance if you die by an accident, rather than illness, but the rider is quite inexpensive to add and is worthwhile if you cannot afford the full amount of life insurance that may be recommended for your situation, or if you do not qualify for disability or critical illness insurance because of low earned income or family medical history.
Actuary - A professional trained in the mathematics and technical aspects of life insurance, pensions, and related fields who calculates premiums and reserves and other values for their companies. These are the experts who calculate the likelihood of morbidity at different ages.
Agent - Also called an Underwriter, Life Underwriter or Sales Representative. This is the sales and service person representing a life insurance company.
Annuity or Life Annuity - An investment contract that pays out regular amounts over a specified period or for life, often during retirement.
Beneficiary - The person or charity or company who is to receive the insurance money when the insured person dies.
Broker - A licensed life insurance agent who has more than two years experience and has contracts with more than one insurance company.
Cancellation - The termination of insurance coverage during the policy period.
Cancellation (flat) - The cancellation of a policy as of its effective date, without any premium charge.
Cancellation (pro-rata) - When the policy is terminated midterm by the insurance company, the earned premium is calculated only for the period of coverage provided.
Cancellation (short-rate) - When the policy is terminated prior to the expiration date at the policyholder's request. Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium.
Cash Value or Cash Surrender Value - The amount payable in cash to the owner of a policy who voluntarily cancels the policy before it is payable by death or maturity. Not all policies have a cash value. If cashed in, there may be tax implications for the policyholder.
Charter Life Underwriter (CLU) - An agent who has completed the course of study administered by the Canadian Association of Insurance and Financial Advisors (CAIFA).
Claim - A report of an incident that may be covered by the policy.
Collision Coverage - Auto insurance that covers loss to an insured's own automobile caused by its collision with another vehicle or object, or by rollover, but which does not cover bodily injury or property damage liability resulting from the collision.
Continuously Insured - Insurance coverage being in effect from an insurer or multiple insurers at all times, without a break or lapse in coverage at any time for any reason.
Convertibility - A provision that allows one type of policy to be exchanged for another without the policyholder providing medical proof of insurability.
Cost Index - See: Interest-Adjusted Net Cost Index.
Death Benefit - The money paid to the beneficiary when the person insured dies.
Deductible - The portion of a claim you pay out of pocket before the insurance company pays. A higher deductible will lower your premium and you do not have to carry the same deductible for comprehensive and collision coverage.
Disability Benefit (Rider) - A benefit providing a waiver of premium, and sometimes payment of monthly income, if the person insured becomes permanently disabled.
Dividend - Also called a policy dividend, is a refund of part of the premium paid to the policyholder. It is available on participating life insurance only. It varies year to year according to the expense experience of the insurer.
Double Indemnity Benefit See: Accidental Death Benefits
Endorsement - Additions or deletions that can be included in your auto insurance policy. For instance, there is an endorsement that can exclude a certain person from driving your car. Once an endorsement is added it takes precedent over the original insurance policy agreement. This is also referred to as a “rider”.
Endowment Insurance - A type of insurance policy payable at the end of a specified period or maturity date if the policyholder is living, or payable to the beneficiary should the policyholder die before the maturity date.
Face Amount - Also called the Sum Insured, is amount stated on the face of the policy which will be paid on the death of the person insured or when the policy matures.
Grace Period - The period, usually 30 or 31 days after the due date, during which an overdue premium may be paid without penalty, and the insured will remain insured.
Group Life Insurance - Life insurance issued to a group of people under a master contract (usually without medical examination). For example, an employer may offer group life insurance to employees as a benefit.
Guaranteed Insurability Clause (Rider) - A clause written into a policy allowing you to purchase additional insurance at specified times without a medical examination. This may be desired if medical problems run in a family.
Interest-Adjusted Net Cost Index - Also known as a Cost or Surrender Index, measures the cost of a policy if surrendered after a specific period such as five, 10 or 20 years. The index takes the "timing value" into account, as well as a stated rate of interest, and projects the policy's true cost in today's dollars.
Interest-Adjusted Net Payment Index - Also known as a Payment Index, measures the ongoing cost of holding your policy, as well as the cost of your policy if you die while holding it.
Lapsed Policy - Due to non-payment of premiums, the policy terminates.
Level Premium Insurance - Life insurance with the same premium year to year. The premium is more than the actual cost of protection during the earlier years of the policy and less than the actual cost in later years.
Life Annuity - See: Annuity.
Life Insured - Usually, but not always, the policyholder, owner or insured person on whose death or disability the insurance becomes payable.
Life Underwriter - See: Agent.
Limited Payment Insurance - This type of life insurance provides coverage for life with premiums payable for only a limited number of years instead of until the death of the person whose life is insured.
Living Benefit - An amount that is paid out while you are alive, in the event a diagnosis of terminal illness.
Mortality Rates - Statistics used in relating life insurance to the number of deaths at various ages over a period of years.
No-fault system - An insurance system where your insurance coverage pays for your injuries regardless of who caused the accident.
Non-participating Insurance - The policyholder does not share in any dividends or surplus earnings distributed by the life insurance company.
Paid-up Insurance - Lifetime insurance on which all the required premiums have been paid.
Participating Life Insurance - Policyholders are entitled to receive dividends.
Payment Index - See: Interest-Adjusted Net Payment Index.
Permanent Insurance - Refers to life insurance payable on the death of the person whose life is insured, whenever that occurs. Premiums are payable on a regular basis until death usually, although policies can become “paid up” before you die. Coverage is provided for life. This type of life insurance provides both protection and often times cash value.
Policy - The printed document issued to the policyholder by the life insurance company, which states the terms of the life insurance contract between them. Important to store in a safe place, such as safety deposit box.
Policyholder - Person who owns a life insurance policy.
Policy Loan - A loan made by a life insurance company to a policyholder using the cash value of a policy as security. Outstanding loans are deducted from the face value amount upon death.
Premium - The payment(s) a policyholder is required to make in order to keep a life insurance policy in force. Premiums may be made monthly, quarterly, semi-annually or annually by cheque or automatic bank withdrawal.
Proof of Insurability - Proving medically that you are qualified to purchase life insurance, i.e. that you are a reasonable risk for the insurer.
Rated - An applicant may be offered a premium that is higher than “standard” risk if he/she has a medical problem, a career of higher than normal risk, or a high risk lifestyle. This is called a “rated” policy.
Reinsurer - Most insurance companies share their risks with reinsurers, i.e. they pay annual premiums to reinsurance companies in return for sharing risk on certain lives.
Renewable Insurance - This provision allows the policyholder to renew at the end of each term without having to provide medical proof of insurability.
Risk - The chance of loss and is a term used to designate an insured or a peril insured against.
Sum Insured - See: Face amount.
Surrender Index - See: Interest-Adjusted Net Cost Index.
Term Insurance - Least expensive form of insurance at young ages, but only renewable for specific periods, to certain ages. Premiums increase at renewal. This form of insurance is the most costly at older ages, and could average out to be higher over the entire coverage period, than the cost of permanent insurance. Lowest commission to an agent.
Underwriting - A process by which a life insurance company examines medical data and determines whether or not it will accept an application for life insurance, and if so, on what basis.
Universal Insurance - Insurance with three components: permanent coverage, administrative costs, and a cash value account invested according to the insured’s wishes. The insured accepts more variables, and more risks, with this type of policy. Highest commission to an agent.
Whole Life Insurance - See: Permanent Insurance.
Source: Governments of Manitoba & Alberta