Glossary of Life Insurance and Annuity Terms

More and more people are buying life insurance and annuities as the population ages. However, they are not always so familiar with the terms and conditions associated with these purchases. These are fairly complex products and it takes some getting used to before people are ready to purchase. For that reason, there are a number of life insurance and annuity terms people should understand.

Accidental Death Benefit – This is the additional funds someone receives from their ordinary benefit in a life insurance policy.

Annuity – An insurance contract that is an agreement for a stream of income in the future in exchange for a payment today.

Annuitization – Process where you convert part or all of the money in a qualified retirement plan into a stream of regular income payments in the future.

Broker – Insurance salesperson that works on behalf of the client to find the best deal in the market.

Commission – The fee paid to a broker or agent that is a percentage of the policy premium. Consumers should be wary of the commission their agent is receiving.

Convertible – Term life insurance coverage which has the possibility to change to permanent insurance regardless no matter the health condition of the person insured.

Death Benefit – The total that will be paid to an insured person’s family upon their death. This is one of the key numbers to consider when buying life insurance.

Elimination Period – The time to wait after filing a claim before the insured can collect the benefits. The shorter the elimination period the better when choosing an insurer.

Exclusions – The criteria that are not covered by the insurance contract. They may be things like hazardous activities.

Future Purchase Option – The right to purchase additional life insurance at a specific price without applying again.

Grace Period – Period that insurance is still covered without paying the premium. Generally this is 31 days.

Hazardous Activity – Bungee jumping, scuba diving, horse riding or other dangerous actions may not be covered in some life insurance policies. These are all considered a hazardous activity.

Insurance Adjuster – A representative of the insurer that determines the liability and payment of the insurance company on the claim. The policy holder or their family members often have to deal directly with this person to get their claim.

Investment Income – The return received by insurers or the annuity holder from their investment in financial products during the period of the contract.

Lapse Ratio – The ratio of the number of life insurance policies that lapsed within a given period for the company.

Liability – Any obligation that an insurer or policy holder has under a contract.

Life Insurance – In general, a type of insurance contract that pays funds to family members on a person’s death in exchange for a stream of payments over time.

Liquidity – The ability to pay debts and liabilities through current cash and short-term assets that can be converted to cash easily.

Living Benefits – The ability to receive the income proceeds of your life insurance policy before you die.

Mortality and Expense Risk Fees – That regular charges that cover such annuity contract guarantees including death benefits.

Net Investment Income – Income earned during the year less investment expenses and depreciation on real estate. This is applicable for some annuity products.

Net Premium – The premium paid minus agent commissions.

Policy – The written contract commencing the insurance including all of the different clauses.

Premium – The payment to the insurance company during a specified period of time to obtain coverage.

Qualifying Event – An occurrence that is qualified to make the insurance payout.

Reserve – An amount of funds that the insurer must have available to payout on the claim if it is triggered.

Risk Management – Pursuing conservative strategies and analysis that lead to prudent financial decisions.

Solvency – Having enough cash reserve or financial assets to pay all liabilities.

Term Life Insurance – Life insurance that has coverage only for a specified period of time, perhaps for the ten years leading up to retirement.

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