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LIFE INSURANCE
Enhancing the future of you and your loved ones

MORTGAGE INSURANCE VS INDIVIDUAL LIFE INSURANCE
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FAQ
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DEFINITIONS
All terminolodgy from A through Z






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DEFINITIONS

A

Actuary
A certified professional who specializes in mathematics of insurance and evaluates statistical information to determine rates and risks.

Additional Insured
A person other than the named insured who is protected by the terms of the policy. Most automobile policies, for example, insure a specific individual as an insured, but also insure anyone driving with that insured's consent. The additional insured may be "named" or "unnamed."

Applicant
The person or firm requesting insurance.

Application for insurance
This is the form on where you state information and answer questions from the insurance company about yourself and your history. This application along with information from a medical examination, if taken, from your physicians, any hospitals you may have visited and investigation are what's used by the insurance company to decide whether or not to offer you life insurance and at what rate.

Assignment Legal transference
The transfer of an entire interest from one party to another. Insurance policies are personal contracts and are not transferable except to spouse unless special consent of the insurance company is granted.

B

Beneficiary
The person(s) named in the policy to receive the life insurance proceeds upon the death of the insured.

C

Cancellation
During the policy period, either the insurer or the customer may terminate coverage according to provisions in the contract. Cash (Surrender) Value The amount that is available in cash for loans and that may be available for withdrawals in a whole life insurance, universal life insurance or survivorship life insurance policy. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Claim
The exercising of a policyholder's right under a policy to be paid by his or her insurance company for certain financial losses suffered. A claim can be any notification of a possible loss under an insurance policy, whether or not any payment follows. For every claim that is reported, the insurance company must set aside money ("reserves") sufficient to cover its anticipated cost. Claimant One who makes a claim.

Clause
Words in a policy which describe certain specifications, limitations or modifications.

Co-insurer
Two or more persons or companies who may be sharing a loss. A company, whose policy covers the same risk as that of one or more other companies, is a co insurer whether the policies are written separately or together.

Commission
Compensation based upon amount of production, e.g., independent insurance agents are compensated on the basis of a percentage of the premium. The percentage varies with different lines of insurance.

Contestability, Non-Contestability,
Clause In an insurance policy, there is a clause which explains the conditions under which the insurer may contest or void the life insurance policy. This contestability is for a limited period of time which, in most states, is two years. After that period of time the insurance company cannot contest the policy.

Convertible Term
Insurance Term insurance which can be exchanged (converted), at the option of the policy owner and without evidence of insurability, for a whole life insurance policy or universal life insurance policy.

D

Death Benefit
An amount set out in the policy representing the amount that will be paid in the event of death. Also may be referred to as "principal sum." Declaration Statement, signed by the insured, warranting that information given by him is true.

F

Face Amount
The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

G

Grace Period
Life insurance premiums are due on a certain date, if you are late in paying, policies allow a period of time where you can still pay your premium and not lose your policy. This is the grace period. Most policies allow a grace period of 30 days from the due date. After the grace period, if the premium is not paid, the policy can lapse i.e. be terminated by the insurance company.

I

Insurability
Acceptability to the company of an applicant for insurance.

Insurable Interest
An interest which the insured must have in the subject matter of the insurance he buys so that if the event insured against occurs, the insured will suffer a pecuniary loss.

Insurance
A contract between an insurance company and its customer for a specific period of time. It protects the customer financially against a loss. Insurance is also a mechanism for dispersing risk, because it shares the losses of the few among the many.

Insurance Policy
A written contract of insurance.

Insured or Insured Life
The person on whose life the policy is issued.

Insurer
The company providing the insurance coverage.

Insuring Clause
Describes the intent of the policy, just what insurance coverage is provided by the policy and in what limits.

K

Key person life insurance
When one has a key person in a business without whom the business would suffer financially, key person life insurance is often purchased which helps to reimburse the company for the business loss incurred by the death of this person.

L

Lapse

An insurance policy which, having reached its expiry date, is not renewed or extended is said to have lapsed.

Level Premium (Life Insurance)
Life insurance for which the premium remains the same from year to year. The premium is normally more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Life Expectancy
The average number of years remaining for an individual to live shown at each age based on long term studies by insurance companies. These statistics as shown on charts called mortality tables.

Life Insurance
A contract between an owner (often the insured person) and a life insurance company that guarantees the payment of a stated amount of money on the death of the insured. Loan (Policy Loan) A loan made by a life insurance company from its general funds to a policy owner on the security of the cash value of a policy.

N

Non-insurable Risk
A risk for which no insurance can be written. The chance of loss is very high or cannot be accurately measured.


O

Owner of a life insurance policy
A life insurance policy can be owned by the insured person or an individual, a company or a trust with an insurable interest in the insured person. Insurable interest means there would be a financial loss by the owner in the event of the death of the insured person.

P

Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.

Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer.

Permanent Life Insurance
Any form of life insurance except term; generally insurance that builds up a cash value, such as whole life. Universal life and whole life are types of permanent life insurance.

Policy
Legally binding contract effecting insurance or certificates thereof, including all clauses, riders, endorsements and renewals. Policy Conditions Provisions which state the rights and duties of the insured or insurer.

Policy Expiration Date
The date when an insurance policy expires. This date can be found on the current Declaration (or "Dec") page, insurance identification card, or recent cancellation notice.

Policy Fee
An additional charge placed on the initial premium to reflect the cost of issuing a policy, establishing records and other expenses.

Policy Limit
The maximum amount an insurer will pay under a policy, either overall or under a particular coverage. Policy Period Duration of policy, most often one year in property/casualty insurance.

Policy Year
Period between anniversary dates. Policyholder Same as Insured.

Premiums
Payments to the insurance company to buy a policy and to keep it in force.

Prior Insurance
Insurance cover in force before the current insurance.

Producer
Broker or agent who sells insurance.

Provisions
Statements contained in an insurance policy which explain the benefits, conditions and other features of the insurance contract.

R

Regulator
The federal, provincial or territorial government agency responsible for the control and regulation of the insurance industry under its jurisdiction.

Reinstatement
The reactivation of suspended or cancelled insurance.

Reinsurance
Insurance purchased by an insurance company from another insurance company (reinsurer) to provide it protection against large losses on cases it has already insured. Essentially, insurance for insurance companies.

Renewable Term Insurance
Term insurance which can be renewed at the end of the term, at the option of the policy owner and without evidence of insurability, for a limited number of successive terms. The rates generally increase at each renewal as the age of the insured increases.

Return of premium life insurance
Also known as return of premium term life insurance, this is term life insurance for a period of time where one receives a guaranteed return of premiums paid if you keep the policy for the term period. For example, 20 year return of premium term would guarantee a return of premium paid after you paid 20 years of premium. Most of these policies also give a partial return of premium if you keep the policy for a great part of the years.

Rider (or Endorsement)
An amendment to an insurance policy. It is used to add or remove coverage.

S

Second to die life insurance

Life insurance that pays the benefit after two people die.

Standard Risk
A person, who, according to a company's underwriting standards, is entitled to purchase insurance protection without special restrictions.

Substandard Insurance
Insurance for those persons who do not qualify for insurance at standard rates or terms

Superintendent of Insurance
The chief officer of the Government Department which regulates insurance.

Surrender
Cancellation of a policy before its normal expiry by mutual consent of insured and insurer. Survivorship life insurance Life insurance purchased on two individuals, usually man and wife, where the life insurance benefit is paid after both individuals have died. This type of life insurance became popular as a solution to paying estate taxes. The estate tax law allowed a couple to delay paying estate taxes until both had died. Thus, survivorship life insurance became popular as a less expensive way for heirs to pay estate taxes. The premiums are less than buying life insurance on one life. By paying premiums now the theory is that one can "pre-pay" the estate taxes because of the lump sum that comes in after the second death.

T

Term life Insurance
Term insurance is life insurance coverage for a specified period of time. This can be at a guaranteed rate or in some cases a guaranteed rate for a period of time and then a projected rate. Term periods can be for 1 year, 5 years, 10 years, 15, 20 and even 30 years. For example: 30 year level term would guarantee a level premium for 30 years based on a specified death benefit. Term life insurance is usually the least expensive form of life coverage, at least initially. After the initial term period of years, 5,10,15, 20, 30 etc. the policy could terminate or it can renew at a higher premium. If you are allowed to renew it at a higher premium (based on your then attained age), it is called renewable term life insurance.

U

Underwriter
An underwriter is an employee of an insurance company who looks at an insurance application and decides whether or not the insurance company can or should provide the applicant with insurance, based on the risk that person presents.

Universal life insurance
Universal life insurance is permanent life insurance with premiums that are not guaranteed. To a certain degree one can "design" a premium on this type of policy. Universal life insurance often can be set up with a lower premium initially than whole life insurance. Premiums and values are based on projections of assumed interest rates, the cost of insurance (also known as mortality cost) and the insurance company's expenses. The actual premium paid may increase because interest rates may go lower or the projected cost of insurance may increase.

W

Waiver of premium
This is an extra or add-in (called a rider in insurance lingo) that can be added to most individual life insurance policies which waives (allows you to stop paying) the payment after the insured person has been disabled (as described and defined in the insurance policy) for a specified period of time, usually six months. At that time, the six months premium paid along with future premium payments are waived.

Whole life insurance
Life insurance which has a guaranteed level premium for the rest of one's life with no increases in premium, with a guaranteed cash value. There is participating whole life insurance usually issued by a mutual life insurance company where one participates as an owner of the company and there is non-participating whole life insurance issued by a stock life insurance company.

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