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Steelhead Insurance Services Corp.
405 North Hayden Bay Drive
Portland, OR 97217
Phone: (877) 235-9299
E-mail: Dave@SteelheadInsurance.com

Glossary

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A

401 (k)
An employer-sponsored retirement savings plan that lets employees withhold and invest a portion of their income before it is taxed.  From an employer-selected list of investment options, employees choose how they want their money invested.  Employers sometimes contribute to employees' 401 (k) plans based on a percentage (such as contributing 50 cents for every dollar an employee invests).

403 (b)
A tax-deferred retirement savings plan similar to a 401 (k) but aimed at teachers and employees of some non-profit organizations.  Participants contribute to either annuity contracts (often called a TSA) with insurance companies, or directly with mutual fund companies.

Accidental Death Benefit
An extra death benefit amount that is paid out in addition to the face amount of the policy if the insured dies as the result of an accident.

Accelerated Death Benefit Option
In the event of terminal illness, usually l year or less, the insured has the option to withdraw some of the death benefit for his personal use.

Accumulation Phase
The period when an annuity owner can add money and accumulate assets tax-deferred.

Accumulation Unit Value (AUV)
An annuity's subaccount price per share during the accumulation phase.  It's the net asset value after income and capital gains have been included and subaccount management expenses have been subtracted.

Activities of Daily Living
Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.

Actual Cash Value
Cash value build up in a life insurance policy, minus any loans taken or money withdrawan or borrowed from the policy.  For example, If you have a $100,000 whole life policy and you took a loan or withdrew $20,000, your death benefit is now worth $80,000 unless the money is put back into the policy. 

Actuary
A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics.  (Americanism: In most other countries the individual is known as "mathematician.")

Agent
Individual who sells and services insurance policies in either of two classifications:

  1. Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage.  The agent's commission is a percentage of each premium paid and includes a fee for servicing the insured's policy.
  2. Direct or career agent represents only one company and sells only its policies.  This agent is paid on a commission basis in much the same manner as the independent agent.

Annual Crediting Cap
The maximum rate that the equity-indexed annuity can be credited in a year.  If a contract has an upper limit, or cap, of 5 percent and the index linked to the annuity gained 5.4 percent, only 5 percent would be credited to the annuity.

Annual Insurance Fee
This covers mortality and expense (M & E) risk charges and other administrative expenses.  It also provides for a guaranteed death benefit and for lifetime guaranteed income payouts.

Annual Policy Fee
This covers the costs of maintaining and administering an account during the accumulation phase.  It is often waived, however, when an account's value reaches a certain level (which is stated in the contract).

Annual Subaccount Fee
A fee deducted for fund operating costs, management fees, and other asset-based costs incurred by the fund.  This charge is assessed at the subaccount level and is not deducted from policy values.

Annuitant
The person, usually the annuity owner, whose life expectancy is used to calculate the income payment amount on the annuity.

Annuitization
Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant.  Once you choose to annuitize, the payment schedule and the amount is generally fixed and can't be altered.

Annuitization Options
Choices in the way to annuitize.  For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year.  Selection of such an option reduces the amount of the periodic payment.

Annuity
An agreement by an insurer to make periodic payments that continues during the survival of the annuitant(s) or for a specified period.

Annuity Owner
The person or people who make decisions about an annuity's investments.  The owner or owners have the rights to make withdrawals, surrender or change the designated beneficiary or other terms of the contract.

Anticipated Initial Investment
The amount of money you want to invest at the beginning.  Most companies have certain minimum initial investment amounts.

Any Occupation
Under this definition, total disability means the inability to work at any occupation.  This definition is sometimes softened by the addition of the following italicized words, the inability to perform the duties of any occupation by which the individual is suited by training, education or experience.

Approved for Reinsurance
Indicates the company is approved (or authorized) to write reinsurance on risks in this state.  A license to write reinsurance might not be required in these states.

Asset Manager
The person in charge of the financial assets such as immediate annuities, deferred annuities or stocks and bonds.

Assets
Assets refer to "all the available properties of every kind or possession of an insurance company that might be used to pay its debts."  There are three classifications of assets: invested assets, all other assets, and total admitted assets.  Invested assets refer to things such as bonds, stocks, cash and income-producing real estate.  All other assets refer to non-income producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums.  Total admitted assets refer to everything a company owns.  All other plus invested assets equal total admitted assets.  By law, some states don't permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them "nonadmissable."

Assets Under Management
All the financial assets under the management of a company, including stocks, bonds, mortgage loans, real estate, investments, policy loans and cash.

Assignment
The transfer of the ownership rights of a Life Insurance policy from one person to another.

Attained Age
Insured's age at a particular time.  For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured's then attained age.  Upon conversion, the premium usually rises substantially to reflect the insured's age and diminished life expectancy.

Aviation Hazard
The extra hazard of death or injury resulting from participation in aeronautics.  This generally will require paying extra premium or the waiving of certain benefits of coverage.

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B

Backdating
A procedure for making the effective date of a policy earlier than the application date.  Backdating is often used to make the age at issue lower than it actually was in order to get lower premium.

Balance Inquiry
An online function that lets you checks the performance and balance of the subaccounts in your annuity.

Beneficiary
The person designated to receive the death benefit when the insured dies.

Benefit Period
In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents.  For example, the number of days that benefits are calculated for a calendar year consists of the days beginning on Jan. 1 and ending on Dec. 31 of each year.

Beta (3 year)
This is a number, expressed in a percentage that reflects the volatility of the subaccount relative to the overall market (usually the S&P 500).  A Beta above 1 percent is usually more volatile than the overall market.

Bonus Rate
A bonus rate is the "extra" or "additional" interest paid during the first year (the initial guarantee period), typically used an added incentive to get companies to switch or select their annuity policy over another.

Broker
Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.

Broker-Agent
Independent insurance salesperson that represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost.  This person is licensed as an agent and a broker.

Business Insurance
Policies written for business purposes, such as key employee, buy-sell, business loan protection, etc.

Buy-Sell Agreement
An agreement among owners in a business which states the under certain conditions, his heirs are legally obligated to sell their interest to the remaining owners, and the remaining owners are legally obligated to buy at a price fixed in the Buy-Sell agreement.

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C

Calendar Year
Earned premiums and loss transactions occurring with the calendar year beginning Jan. 1, irrespective of the contractual dates of the policies to which the transactions relate and regardless of the dates of the accidents.

Capital
Equity of shareholders of a stock insurance company.  The company's capital and surplus are measured by the difference between its assets minus its liabilities.  This value protects the interests of the company's policy owners in the event it develops financial problems; the policy owners' benefits are thus protected by the insurance company's capital.  Shareholders' interest is second to that of policy owners.

Capitalization or Leverage
Measures the exposure of a company's surplus to various operating and financial practices.  A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.

Captive Agent
Representative of a single insurer or fleet of insurers, who is obliged to submit business only to that company, or at the very minimum, gives that company first refusal rights on a sale.  In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.

Case Management
A system of coordinating medical services to treat a patient, improve care and reduce cost.  A case manager coordinates health care delivery for patients.

Certificate of Deposit (CD)
Short or medium-term, interest-bearing, FDIC-insured debt instrument offered by banks and savings and loans.  A low risk investment vehicle with low returns, there is usually an early withdrawal penalty.

Charitable Annuity (Gift Annuity)
A charitable gift annuity is a contract between a donor and a foundation, under which the foundation guarantees payment of an annuity, unlike a trust which pays the annuity from its assets alone.  Two features in particular make charitable gift annuities appealing.  An individual may specify whether he or she wants an immediate annuity, with payment to begin no later than one year from the date of the gift, or a deferred gift annuity, from which payments are not to begin until a specified future date.  In addition, the income stream from such an arrangement can be higher than current market rates.

Charitable Lead Trust
These trusts provide income-either a percentage or a specified amount-to a Foundation for a specific number of years. At the termination of this period, the principal is returned to the donor or others whom the donor has designated.  Under one type of charitable lead trust the donor includes the income in his or her taxable income, but is entitled to a corresponding charitable deduction if he or she itemizes the amount of income paid to the Foundation in that year.

Charitable Remainder Annuity Trust
One of many types of available trusts, charitable remainder annuity trusts provide that a specified dollar amount (at least 5% of the fair market value of the assets at the time the trust is created) be paid at least once a year to the beneficiary for their lifetime or for a term of years, not to exceed twenty.

Charitable Remainder Trust
In turn for the irrevocable transfer of cash or property to a trustee such as a Foundation or Charity, you receive a certain percentage or amount of the annual income from the property to you and/or another named beneficiary for life or for a specified term of years.  The remainder interest in the property would then pass to the Foundation, for their benefit.  You would be entitled to a federal income tax deduction for the value of that charitable remainder interest, which is based on the number and ages of life income beneficiaries and the percentage of payout you and the trustee agree upon.

Charitable Remainder Unitrust
This type of trust provides that a fixed percentage (at least 5% of the fair market value of the assets in trust, computed each year) be paid to the beneficiary (ies) at least once a year.  In a unitrust, however, the amount paid to the beneficiary (ies) will vary on a yearly basis according to the annual reevaluation of the trust principal.

Children's Term Insurance Rider
Provides term insurance to the insured's dependents.  It is a flat premium for all his dependents and the benefit usually is not less than $1,000 or more than $10,000.

Claim
A demand made by the insured, or the insured's beneficiary, for payment of an in-force policy of the benefits as provided by the policy.

Collateral Assignment
Assign all or part of a life insurance policy as security for a loan.  If the insured dies the creditor would receive only the amount due on the loan.

Compounding of Gains
Interest that is credited to your policy is added to your principal as well as interest credited in prior policy years.

Contestable Clause
A provision in an insurance policy setting forth the conditions under which the insurer may contest or void the policy.  After that time has lapsed, normally two years, the policy cannot be contested.

Contingent Annuitant
The person who is entitled to receive the annuity benefits based on other specified events.

Contingent Beneficiary
A person or persons named to receive policy benefits if the primary beneficiary is deceased at the time the benefits become payable.

Convertible (Conversion)
A policy that may be changed to another form by contractual provision and without evidence of insurability.  Most term policies are convertible into permanent insurance.

Cost Basis Your initial payment/premium(s) paid to a nonqualified annuity is known as the cost basis in your contract.  Since it was previously taxed, your cost basis will not be taxed upon withdrawal.  If a previous distribution was not fully taxable, the cost basis would be reduced by the amount that was not taxable.  For contracts purchased after August 14, 1982, a "withdrawal" must come from earnings first for tax purposes, and any amounts in excess of your cost basis will be taxed as ordinary income (an additional 10 percent "federal income" tax penalty may apply for those less than 59 1/2 years of age) upon withdrawal.

Coverage
The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification.  In life insurance, living and death benefits are listed.

Convertible
Term life insurance coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination.  The individual cannot be denied coverage or charged an additional premium for any health problems.

Corporate Gift
If you are an owner or CEO of a business, you might wish to consider making a corporate gift through which you may derive federal tax benefits as well as additional benefits in some states.  In some states, for instance, corporations making gifts to institutions of higher education within the state are entitled to a credit against gross income tax, subject to applicable limits.

Cost-of-Living Adjustment (COLA)
Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.

Current Interest Rate
This is the interest rate that an annuity is paying, including the sum of the base rate, if any and the bonus rate, if any.  The current rate is set by the insurance company at the time of issue and is guaranteed for specific length of time.

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D

Death Benefit - Annuity
The payment the investor's estate or beneficiaries will receive if he or she dies before the annuity matures.  There are several types of death benefits with variable annuities, including: Current account value or initial investment (whichever is greater), in which the beneficiary receives the value of the annuity when the policyholder dies; Rising floor, in which an investment company guarantees a minimum return on premium deposits, regardless of subaccount investment performance; Ratchet, a benefit equal to the greater of (a) the contract value, (b) premium payments less prior withdrawals or (c) the contract value on a specified prior date; and Stepped-up, which guarantees the account value to the beneficiary as of a particular anniversary date (e.g. every 5 years).

Death Benefit - Life Insurance
The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.

Declined Risk
A proposed insured that is considered to present a risk that is too great for an insurer to cover.

Decreasing Term A form of life insurance that provides a death benefit, which declines throughout the term of the contract, reaching zero at the end of the term.

Deductible
Amount of loss that the insured pays before the insurance kicks in.

Deferred Annuities (Tax Deferred)
Deferred annuities are annuity contracts for people who want to save on a tax-deferred basis for many years, and then convert to a payout schedule once they retire.  Contrary to an immediate annuity, taxes on deferred annuities do not become payable until some years after its purchase.  The single premium or regular premiums are capitalized during the deferred period, then the built up capital is converted into an annuity.  Deferred annuities typically stipulate that payments be made to the Annuitant at a later date, such as when the annuitant reaches a certain age.

Direct Rollover
This is when an eligible qualified retirement plan or Section 403(b) distribution is moved directly from a qualified retirement plan or Section 403(b) tax-deferred annuity to an IRA or to another qualified retirement plan or Section 403(b) tax-deferred annuity.  The individual's employer will not have to withhold 20% for federal income taxes from a direct rollover.

Disability Insurance
Disability Insurance provides supplementary income in the event of an illness or accident resulting in a disability that prevents the insured from working at their regular employment.

Dividend
The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer.  A portion of the surplus paid to the stockholders of a corporation.

Double Indemnity Payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances.

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E

Effective Interest Rate
The actual annual interest rate that accrues, after taking into consideration the effects of compounding.

Elimination Period
The time which must pass after filing a claim before policyholder can collect insurance benefits.  Also known as "waiting period."

Employer Plan or Qualified Plan
A tax-qualified retirement plan is an advantage that an employer establishes to benefit employees.  Permissible contributions will depend on the type of plan (such as a defined benefit plan or a profit-sharing plan, including a Section 401(k) plan) and on what the particular employer elects.  These plans are highly regulated and subject to significant IRS restrictions.

Endowment
In an endowment fund, the principal is invested, and only a portion of the investment earnings is spent.  The rest of the earnings are channeled back into the fund, so that the endowment grows over time. In this way, the endowment becomes a perpetual source of funding for whatever the donor wishes to achieve.

Entity Agreement
A buy-sell agreement in which the company agrees to purchase the interest of a deceased or disabled partner.

Equitable Owner
An equitable owner is the beneficiary of a property held in a trust.

Equity Indexed Annuity
An annuity whose returns are based upon the performance of an equity market index, such as the S&P 500, DJIA, or NASDAQ.  The principal investment is protected from losses in the equity market, while gains add to the annuity's returns.

Equity Investment Style
An annuity subaccount's investment style (the blend of investment types in the annuity).

Estate Planning
The preparation of a plan of administration and disposition of one's property before or after death, including will, trusts, gifts, power of attorney, etc.

Evidence of Insurability
The statement of information needed for the underwriting of an insurance policy.

Exclusions
Items or conditions that are not covered by the general insurance contract.

Exchange (1035)
A 1035 exchange is an exchange of one nonqualified annuity contract for another.  Internal Revenue Code (IRC) Section 1035 generally allows individuals to exchange life, endowment, or annuity contracts for similar contracts that are better suited to their needs, if eligibility requirements are met.  For a 1035 exchange, the annuity contract owner and the insured or annuitant combination on the old and new contract must be the same.

Excess Contributions to an IRA
An excess IRA contribution is one that exceeds the combined deductible and nondeductible limits established by the IRS.  If an excess contribution is not removed prior to the tax return due date (including extensions) by the contributing individual, the excess contribution is subject to the 6% excise tax in the year of contribution. The excess will be carried over and subject to excise tax each year thereafter until it is removed. It is the responsibility of the client to file Form 5329 to calculate his or her penalty.

Exclusion Ratio
(Nonqualified Income Annuity.)  This is the ratio that determines which portion of an annuity distribution are earnings and which portion is a return of your original investment.  Only the portion consisting of earnings is taxable.

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F

Face Amount
The amount of insurance provided by the terms of an insurance contract, usually found on the face of the policy. In a life insurance policy, the death benefit.

Fixed Annuity (Fixed Rate Annuity)
Fixed annuities are an investment vehicle offered by insurance companies that guarantee a stream of fixed payments over the life of the annuity. The insurer, not the insured, takes the investment risk.  Fixed annuities are sometimes called a fixed dollar annuity.

Fixed Benefit
A benefit, the dollar amount of which does not vary

Fixed Deferred Annuity
With fixed annuities, an insurance company offers a guaranteed interest rate plus safety of your principal and earnings.  Your interest rate will be reset periodically, based on economic and other factors, but is guaranteed to never fall below a certain rate

Five-Year Annualized Total Return
This percentage figure reflects a subaccount's total return (gain or loss) averaged over 5 years.

Flexible Premium Annuity
A flexible premium annuity has a regular periodic payment that varies.

Free Look Provision
An individual life insurance and annuity provision that gives the policy owner a stated time, usually 10 - 30 days after the policy is delivered, in which to cancel the policy and receive a full refund on the initial premium payment.

Front-end Load Fees
A one-time fee insurance companies charge to defray the costs of establishing new accounts.

Future Purchase Option
Life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability.  Also known as "guaranteed insurability option."

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G

General Account
All premiums are paid into an insurer's general account.  Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.

Grace Period
The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force.  If a premium is paid during the grace period, the premium is considered to have been paid on time.  In Universal Life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.

Guaranteed Insurability Option
See "future purchase option."

Guaranteed Renewable
A policy provision in many products which guarantees the policy owner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policy owner; however, the company can raise rates if they choose.

Guaranty Association
An organization of life insurance companies within a state responsible for covering the financial obligations of a member company that becomes insolvent.

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H

Hazardous Activity
Bungee jumping, scuba diving, horse riding and other activities not generally covered by standard insurance policies.  For insurers that do provide cover for such activities, it is unlikely they will cover liability and personal accident, which should be provided by the company hosting the activity.

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I

Immediate Annuity
An immediate annuity am an annuity which is purchased with a single payment and which begins to pay out right away.  When you purchase an immediate annuity, it is generally with a single lump sum, and your income payments begin within 12 months of the date of purchase.  With fixed immediate annuities, your payment from the annuity is based on a fixed interest rate.  With variable immediate annuities, your payment is based on the value of the underlying investment, usually a stock portfolio.

After choosing an immediate annuity the annuity owner determines the schedule of payments.  This can be done either monthly, quarterly, semiannually or annually. Another important decision to make with your immediate annuity is how long the payments will last.  The annuity owner can choose to receive payments for a specified period of time, an entire lifetime or even for the life of a beneficiary.

Indexed Annuity
An Indexed Annuity is an annuity based on a statistical indicator, the equity market index, which provides a representation of the value of the securities, which constitute it. An index annuity is a hybrid of both fixed and variable annuities. Indices often serve as guides for a given market or industry and benchmarks against which financial or economic performance is measured. An indexed annuity can be based on the S&P, Nasdaq, or the DJIA.

The principal investment into the indexed annuity is protected from losses in the equity market, while gains add to the annuity's returns.  This means that once you make a premium payment you will never have less in your indexed annuity account than your premium payment, and as the index appreciates in value, so does the Indexed annuity.  Indexed annuities can be a wise investment and become a great source of additional income revenue.

Incontestable Clause
A clause in a policy providing that a policy has been in effect for a given length of time (two or three years), the insurer shall not be able to contest the statements contained in the application.

Incontestability Provision
An insurance and annuity provision that limits the time within which the insurer has the right to avoid the contract on the ground of material misrepresentation in the application for the policy.

Independent Insurance Agents & Brokers of America (IIABA)
Formerly the Independent Insurance Agents of America (IIAA), this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.

Individual Retirement Account (IRA)
An IRA is a tax-advantaged personal savings plan that lets an individual set aside money for retirement.  All or part of the participant's contributions may be tax deductible, depending on the type of IRA chosen and the investor's personal financial circumstances.  Distributions from many employer-sponsored retirement plans may be eligible to be rolled into an IRA to continue tax-deferred growth until the funds are needed.

Inflation Protection
An optional property coverage endorsement offered by some insurers that increases the policy's limits of insurance during the policy term to keep pace with inflation.

Insurability
Acceptability to the insurer of an application for insurance.

Insurance Institute of America (IIA)
An organization which develops programs and conducts national examinations in general insurance, risk management, management, adjusting, underwriting, auditing and loss control management.

Insurable Interest
you have an insurable interest in the insured if upon the death of the insured you would suffer financial loss.

Insurance Policy
The printed form, which serves as the contract between an insurer and an insured.

Interest-Crediting Methods
There are at least 35 interest-crediting methods that insurers use.  They usually involve some combination of point-to-point, annual reset, yield spread, averaging, or high water mark.

Interest Only Option
A settlement option for annuities in which an individual is paid only the interest on the maturity proceeds.  A Form 1099-R is issued in the year the annuity matures, and will report any taxable gain.  From that point on, the owner receives interest on the maturity proceeds left on deposit.

Investment Income
The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks.  It doesn't include the value of any stocks or bonds that the company currently owns.

Irrevocable Beneficiary
A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner has the right to change the beneficiary designation only after obtaining the beneficiary’s consent.

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J

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K

Key Person (Key Man) Insurance
Insurance on the life of a key employee whose death would cause the employer financial loss.  The policy is owned and payable to the employer.

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L

Laddering
Purchasing bond investments that mature at different time intervals.

Lapsed Policy
A Insurance policy, which has been allowed to expire because of nonpayment of premiums. 

Level Term Insurance
A type of term policy where the face value remains the same from the effective date until the expiration date.  However, after the level premium period most policies turn into Annual Renewable Term where the premiums increase annually.

Leverage or Capitalization
Measures the exposure of a company's surplus to various operating and financial practices.  A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.

Life Annuity
A life annuity is an annuity that continues to pay out as long as the annuitant is alive.

Life Insurance
An agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured.

Licensed for Reinsurance Only
Indicates the company is a licensed (admitted) insurer to write reinsurance on risks in this state.

Life and Health Guarantee Association
An organization that operates under the supervision of a state insurance commissioner to protect policy owners, insured's, beneficiaries, and specified others against losses that result from the financial impairment or insolvency of a life insurer that operates in the state.

Liquidity
Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss.  There are two kinds of liquidity: quick and current.  Quick liquidity refers to funds--cash, short-term investments, and government bonds--and possessions which can immediately be converted into cash in the case of an emergency.  Current liquidity refers to current liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash.  Quick liquidity is a subset of current liquidity.  This reflects the financial stability of a company and thus their rating.

Living Benefits
This feature allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die.  Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home.  Also known as "accelerated death benefits."

Living Trust
A trust created for the trustee and administered by another party while the trustee is still alive.  Can be either revocable or irrevocable.

Long Term Care Insurance
An insurance policy that provide benefits for the chronically ill or disabled over a long period of time.

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M

Market Value Adjustment
Adjustments or deductions made to charge off a loss.

Material Misrepresentation
A misrepresentation that would affect the insurance company’s evaluation of a proposed insured.

Medicaid Annuity
A Medicaid annuity is the term given to the process of using an immediate annuity to help protect assets against the high cost of nursing homes and expensive healthcare charges.

Since Medicaid won't pay for people's nursing home care if they have assets of more than about $2,000, (not counting a house or car), some individuals utilize a technique whereby they transfer all of their liquid assets into an irrevocable Medicaid annuity.  The annuity effectively transfers all of their wealth to a third party insurance company, which in return guarantees the Medicaid annuity owner a monthly fixed income for life.  In many states, the Medicaid annuity can be an attractive alternative to traditional advice of self-impoverishment to qualify for welfare.

Several states have initiated look back policies whereby the Medicaid annuity is not allowed to be utilized due to state regulations.  In many states however, the Medicaid annuity is an ideal tool for certain individuals, providing that the annuity contract is irrevocable, actuarially sound, includes equal payments over the lifetime of the annuitant, and does not include a benefactor or balloon payment upon death.

Medical Information Bureau (MIB)
A data service that stores coded information on the health histories of persons who have applied for insurance from subscribing companies in the past.  Most Life insurers subscribe to this bureau to get more complete underwriting information.

Money Market Portfolio
Your portfolio is a collection of investments all owned by the same individual or organization.  A portfolio could contain annuities, stocks, bonds or a 401(k) plan.

Morningstar Rating
A rating of annuity products based on their quality as measured by Morningstar, a leading, independent provider of investment information.  Annuities subaccounts are rated with 1-5 stars, with 5 being the best possible rating.

Mortality and Expense Risk Fees
A charge that covers such annuity contract guarantees as death benefits.

Mortality Cost
The first factor considered in life insurance premium rates.  Insurers have an idea of the probability that any person will die at any particular age; this is the information shown on a mortality table.

Mortality Tables
Charts that show the death rates an insurer may reasonably anticipate among a particular group of insured lives at certain ages.

Mortgage Insurance Policy
In life and health insurance, a policy covering a mortgagor with benefits intended to pay off the balance due on a mortgage upon the insured's death, or to meet the payments due on a mortgage in case of the insured's death or disability.

Mutual Insurance Companies
Companies with no capital stock, and owned by policyholders.  The earnings of the company--over and above the payments of the losses, operating expenses and reserves--are the property of the policyholders.  There are two types of mutual insurance companies. Non-assessable mutual charges a fixed premium and the policyholders cannot be assessed further.  Legal reserves and surplus are maintained to provide payment of all claims.  Assessable mutual are companies that charge an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.

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N

National Association of Insurance Commissioners (NAIC)
Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.

No Cancellable
Contract terms, including cost that can never be changed.

Nonmedical (Non-Med)
A contract of life insurance underwritten on the basis of an insured's statement of his health with no medical examination required.

Nonqualified Deferred Annuity
A contract that provides for tax deferral of investment income until withdrawn from the contract.  Fixed annuities offer a fixed rate of return for a stipulated period, while variable annuities offer a choice of investment options.

Nonqualified Income Annuity
A contract that provides periodic payments based on life or joint life expectancies and/or a period certain (i.e., life and 10 years certain).  The periodic payment amount is based on the amount used to purchase the contract, the terms of the payout, and an assumed rate of return.

Non-qualified Sources
Sources of money where the money has already been taxed, such as cash, mutual funds, certificates of deposit (CDs), and money market funds.

Nonresident Alien (NRA)
A person who is not a citizen of the United States or does not maintain a tax residence within the country.  NRAs are subject to special tax consideration.  NRAs also include foreign fiduciaries, foreign partnerships, and foreign corporations.  Form W-8 (BEN, ECI, EXP, and IMY) has to be obtained from all persons claiming NRA status.  For individuals, Form W-8 BEN will generally be the appropriate form. Payments to properly documented NRAs are generally exempt from IRS 1099 reporting and backup withholding rules.  However the tax law requires 30% NRA withholding rate.  Special Internal Revenue Code (IRC) provisions or income tax treaties may reduce or eliminate this withholding.  Note: The old IRS Form W-8 will expire on December 31, 2000.  You must file a new Form W-8 (BEN, ECI, EXP, and IMY) before January 1, 2001, to be treated as an NRA.

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O

Occupational Hazard
A condition in an occupation that increases the peril of accident, sickness, or death. It usually will mean higher premiums.

Offshore Annuities
Offshore annuities enable high net worth persons to enjoy tax-deferred account accumulation and build up.  When investing into offshore annuities, the client's monies are put into segregated accounts in a range of investment funds.  Banks and professional investment managers in offshore domiciles manage these monies for maximum client benefit.

The many offshore annuities companies generally offer term life insurance protection as well.  The proceeds of claims going to dependents & beneficiaries will become free of taxation.

Any person looking to invest into offshore annuities should be aware of the complexity of the taxation regimes that apply to nationals of different countries.  It is very important to work with the tax advisors, accountants and lawyers of prospective annuitants to determine a suitable offshore annuities provider.

One-year Annualized Total Return
This percentage figure reflects a subaccount's total return (gain or loss) averaged over a year.

Own Occupation
Insurance contract provision that allows policyholders to collect benefits if they can no longer work in their own occupation.

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P

Paid-Up Additional Insurance
An option that allows the policyholder to use policy dividends and/or additional premiums to buy additional insurance on the same plan as the basic policy and at a face amount determined by the insured's attained age.

Participant
An individual who participates in a retirement plan sponsored either by his employer or, if self-employed, by himself or herself.

Participation Index Rate
The amount of the percentage change (which is set by the company) used to determine the amount to be credited to your policy for that year.

Participation Rate
In equity-indexed annuities, a participation rate determines how much of the gain in the index will be credited to the annuity.  For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.

Payout Phase or Payout Period
The period during which the money accumulated in an annuity is paid out as regular income payments.

Pension Annuities
A pension is a qualified retirement plan set up by a corporation, labor union, government, or other organization for its employees.  Examples of pensions include profit-sharing plans, stock bonus and employee stock ownership plans; thrift plans, target benefit plans, money purchase plans, and defined benefit plans.

Permanent Life Insurance
A term loosely applied to Life Insurance policy forms other than Group and Term, usually Cash Value Life Insurance, such as Whole Life Insurance or Universal Life.

Policy
The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof.

Policy Anniversary
As a general rule, the date on which coverage under an insurance policy became effective.

Policy Fee
There is two calculations to determine the premium for term insurance.  The Policy Fee, which is a flat fee added to each policy and the rate per thousand times the number of thousands of death benefit.  The policy fee is usually the same for all ages and amounts.

Policy Rider
An amendment to an insurance policy that becomes part of the insurance contract and either expands or limits the benefits payable under the contract.

Policy or Sales Illustration
Material used by an agent and insurer to show how a policy may perform under a variety of conditions and over a number of years.

Pre-Existing Condition
A coverage limitation included in many health policies which states that certain physical or mental conditions, either previously diagnosed or which would normally be expected to require treatment prior to issue, will not be covered under the new policy for a specified period of time.

Preferred Risk
Any risk considered to be better than the standard risk on which the premium rate was calculated.

Premature Distribution
(Premature Distribution Penalty.)  Withdrawals made from certain tax-favored plans may be subject to an additional 10% federal income tax if the withdrawal is made before the contract owner reaches age 59 1/2.  Certain exemptions do apply.  The contract owner should seek legal and tax advice before making plan withdrawals.

Premium
The price of insurance protection for a specified risk for a specified period of time.

Premium Balances
Premiums and agents' balances in course of collection; premiums, agents' balances and installments booked but deferred and not yet due; bills receivable, taken for premiums and accrued retrospective premiums.

Premium Bonus
A Premium bonus is additional money that is credited to the accumulation account of an annuity policy under certain conditions.

Premium Deferred Annuities
In the world of annuities there are many options to choose from.  When it comes to premium deferred annuities it is important to know how they are different from other fixed annuities.  There are two different types of deferred fixed annuities.  Those purchased with a onetime premium are called single-premium deferred annuities.  Annuities funded by ongoing contributions over a period of time are called flexible-premium deferred annuities.

Premium Earned
The amount of the premium that has been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim.  A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.

Previous Month-end AUV
A dollar amount that reflects the previous month's accumulated unit value price.

Primary Beneficiary
The beneficiary named as first in line to receive proceeds or benefits from a policy when they become due.

Private Annuity
A private annuity is a personal or restricted annuity.  The major difference between private annuities and commercial annuities is that the person or entity that assumes the obligation for the private annuity is not in the business of selling annuities.  The private annuity is an arrangement where the client transfers property to another in return for the other's promise to make periodic payments to the client in fixed amounts for the rest of the Client's life.  The typical situation involves an insurance company; but properly established private annuities are fully recognized by the Internal Revenue Service as well.

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

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Q

Qualified Annuities
Qualified annuities are annuities purchased for funding an IRA, 403(b) tax-deferred annuity, or other type of retirement arrangements.  An IRA or qualified retirement plan provides the tax deferral.  An annuity contract should be used to fund an IRA or qualified retirement plan to benefit from an annuity's features other than tax deferral, including the lifetime income payout option, the death benefit protection and, for variable annuities, the ability to transfer among investment options without sales or withdrawal charges.

Qualified Retirement Plan
Qualified retirement plans are generally any plan or arrangement eligible for special federal income tax treatment.  Examples of qualified retirement plans include 401(k) plans, profit sharing plans, IRAs, etc.

Qualified Versus Non-Qualified Policies
Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.

Qualifying Event
An occurrence that triggers an insured's protection.

Quick Assets
Assets that is quickly convertible into cash.

Quick Liquidity Ratio
Quick assets divided by net liabilities plus ceded reinsurance balances payable. Quick assets are defined as the sum of cash, unaffiliated short-term investments, unaffiliated bonds maturing within one year, government bonds maturing within five years, and 80% of unaffiliated common stocks.  These assets can be quickly converted into cash in the case of an emergency.

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R

Rated
Coverage issued at a higher rate than standard because of some health condition, or impairment of the insured.

Reciprocal Insurance Exchange
Unincorporated groups of individuals, firms or corporations, commonly termed subscribers, who mutually insure one another, each separately assuming his or her share of each risk. Its chief administrator is an attorney-in-fact.

Re-Entry
Re-entry, which is the allowance for level-premium term policy owners to qualify for another level-premium period, generally with new evidence of insurability.

Reinsurance
In effect, insurance that an insurance company buys for its own protection.  The risk of loss is spread so a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.

Renewable Term
Term insurance that may be renewed for another term without evidence of insurability.  Level term usually turns into renewable term with increasing premiums after the level premium period.

Renewal
The automatic re-establishment of in-force status affected by the payment of another premium.

Replacement
A new policy written to take the place of one currently in force.

Residual Benefit
In disability insurance, a benefit paid when you suffer a loss of income due to a covered disability or if loss of income persists.  This benefit is based on a formula specified in your policy and it is generally a percentage of the full benefit. It may be paid up to the maximum benefit period.

Retirement Annuities
Retirement annuities can refer to many to different types of investment vehicles.  But in general these are 'old style' individual pension plans.  These types of retirement annuities were similar in nature to personal pension plans, which allowed you to take a greater amount of your pension fund at retirement as a tax-free lump sum but insisted that you should normally be at least 60 years old before gaining the benefits.

Retirement annuities can be immediate, deferred or even fixed or variable. In general, retirement annuities are can mean many things to many different people.  It is important to understand every form of retirement planning before simply jumping into retirement annuities.

Retirement Plan Withholding
A distribution to an employee from an employer-sponsored retirement plan is generally subject to a mandatory 20% withholding for federal income taxes (unless the distribution is $200 or less).  No withholding is necessary if the funds are directly rolled over into an IRA or other qualified retirement plan. Other rules apply to periodic distributions.

Reverse Annuity Mortgage
A reverse annuity mortgage is an arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender.  A reverse annuity mortgage is also called reverse-annuity mortgage or home equity conversion mortgage.

Revocable Beneficiary
The beneficiary in a life insurance policy in which the owner reserves the right to revoke or change the beneficiary.  Most policies are written with a revocable beneficiary.

Risk Class
Risk class, in insurance underwriting, is a grouping of insured’s with a similar level of risk.  Typical underwriting classifications are preferred, standard and substandard, smoking and nonsmoking, male and female.

Rollover
A rollover is a distribution from a qualified retirement plan or Section 403(b) to an individual and then from the individual to another qualified retirement plan, Section 403(b), or IRA.  After constructive receipt of the distribution, an individual has 60 days to roll the funds over into another qualified funding vehicle in order for the funds to remain qualified.  (If the funds are distributed from a qualified plan or Section 403(b) tax deferred annuity, mandatory withholding will take place at a rate of 20 %.)

Roth Conversion
You can roll over funds from a traditional IRA to a Roth IRA if you meet certain requirements.  The taxable amount of the rollover funds will be included in the gross income for the year in which the conversion is made.  If the conversion occurred in 1998, the taxable amount can be spread out over four years.

Roth IRA
A Roth IRA is a special type of IRA under which distributions may be tax exempt. Individuals may make nondeductible contributions into a Roth IRA if certain income requirements are met.  Qualified distributions from a Roth IRA are tax-free.

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S

Section 1035 Exchange
This refers to a part of the Internal Revenue Code that allows owners to replace a life insurance or annuity policy without creating a taxable event.

Section 7702
Part of the Internal Revenue Code that defines the conditions a life policy must satisfy to qualify as a life insurance contract, which has tax advantages.

Securities
Drawn securities are securities that call for redemption.

Separate Account
A separate account is an investment option that is maintained separately from an insurer's general account.  Investment risk associated with separate-account investments is born by the contract owner.

Settlement Option
The methods by which the insurer may pay annuity or life insurance policy proceeds to the annuitant, contract owner, policy owner or beneficiary.

Simplified Employee Pension (SEP)
A simplified employee pension is a written arrangement or program that allows an employer to contribute tax-deductible dollars toward an employee's retirement. A SEP may be established by a corporate or no corporate employer.  From an individual's perspective, a SEP has the administrative simplicity of an IRA, but also allows the employer to make contributions on the employee's behalf in addition to the employee's annual contribution limit.

Single Premium Immediate Annuity (SPIA)
Plan in which an individual makes a single payment to mutual fund or insurance company.  Similar to an IRA but having no annual contribution limit.

Split Annuities
A split annuity is a very tax efficient and intelligent investment vehicle combining two different types of annuities - a single premium deferred annuity and a single premium immediate annuity.  One annuity repays you a set sum of money each and every month over a specified period of time.  The other annuity is left in place to grow on a fixed interest basis, with the goal being that by the time funds in your immediate annuity are depleted, the single premium deferred annuity will be restored to your original starting principal.  This allows you to then restart the process with new prevailing interest rates.

Standard & Poor's (S&P) Rating
Standard & Poor's analyzes and rates insurance companies' financial strengths in part on their ability to meet their contractual obligations to policyholders. Standard & Poor's ratings are in letter grade form as follows:

  • AAA
    An insurer rated 'AAA' has EXTREMELY STRONG financial security characteristics.  'AAA' is the highest Insurer Financial Strength Rating assigned by Standard & Poor's.
  • AA
    An insurer rated 'AA' has VERY STRONG financial security characteristics, differing only slightly from those rated higher.
  • A
    An insurer rated 'A' has STRONG financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.
     
  • BBB
    An insurer rated 'BBB' has GOOD financial security characteristics, but is more likely to be affected by adverse business conditions than are higher rated insurers.  An insurer rated 'BB' or lower is regarded as having vulnerable characteristics that may outweigh its strengths.  'BB' indicates the least degree of vulnerability within the range; 'CC' the highest.
  • BB
    An insurer rated 'BB' has MARGINAL financial security characteristics.  Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.
  • B
    An insurer rated 'B' has WEAK financial security characteristics.  Adverse business conditions will likely impair its ability to meet financial commitments.
     
  • CCC
    An insurer rated 'CCC' has VERY WEAK financial security characteristics, and is dependent on favorable business conditions to meet financial commitments.
  • CC
    An insurer rated 'CC' has EXTREMELY WEAK financial security characteristics and is likely not to meet some of its financial commitments.
     
  • R
    An insurer rated ÔR' is under regulatory supervision owing to its financial condition.  During the regulatory supervision, the regulators may have the power to favor one class of obligations over others or pay some obligations and not others.  The rating does not apply to insurer’s subject only to non-financial actions such as market conduct violations.
     
  • NR
    An insurer designated 'NR' is NOT RATED, which implies no opinion about the insurer's financial security. and contracts in accordance with their terms.

Standard Risk
A risk that is on a par with those on which the rate has been based in the areas of health, physical condition, and morals.  An average risk, not subject to rate loading or restrictions because of health.

State of Domicile
The state in which the company is incorporated or chartered.  The company also is licensed (admitted) under the state's insurance statutes for those lines of business for which it qualifies.

Stock Insurance Company
An incorporated insurer with capital contributed by stockholders, to whom earnings are distributed as dividends on their shares.

Stock Purchase Agreement
A formal buy-sell agreement whereby each stockholder is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obligated to sell.  This agreement is usually funded with life insurance.

Stock Redemption Agreement
A formal buy-sell agreement whereby the corporation is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obliged to sell.  This agreement is usually funded with life insurance.

Subaccount Charge
The fee to manage a subaccount, which is an investment option in variable products that is separate from the general account.

Subaccounts
The various investment portfolios in which your annuity funds are invested.  You choose which subaccounts you want your money invested in and how much you want to allocate to each.

Subaccount Investment Objective
identifies a subaccount's investment type (for example, aggressive growth, balanced, money market or corporate bond).

Subaccount Net Assets
The assets of a subaccount expressed in millions of dollars.

Surrender Charges
The charge for withdrawing money from an annuity before the date agreed upon in the contract.  Surrender charges typically are a percentage of the total premium deposited, and the charge decreases to 0 over time as the annuity gets closer to the date it will mature.

Surrender Period
A set amount of time during which you have to keep the majority of your money in an annuity contract.  Most surrender periods last from five to 10 years.  Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period.  If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.

Surrender Value
The surrender value is the amount that is available in cash for loans and that may be available for withdrawals.  Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Swiss Annuities (Offshore Annuities)
In the spectrum of global investments Swiss annuities are unique.  Swiss annuities and endowments are products offered by Swiss insurance companies.  This type of annuity does not incur Swiss or U.S. excise taxes; they can protect you from creditors and are available in fixed or variable type.  The options and variations to choose from are diverse and ensure maximum flexibility to fit your individual investment requirements.  The goals of Swiss Annuities are the preservation of capital and to provide an excellent asset protection and estate-planning vehicle.

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T

Tax Deferred Annuities
A tax-deferred annuity is a contract for people who want to save on a tax-deferred basis for many years, and then convert to a payout schedule once they retire.  Contrarily to an immediate annuity, the tax deferred annuities do not become payable until some years after its purchase.  The single premium or regular premiums are capitalized during the deferred period, then the built up capital is converted into an annuity.

A tax deferred annuity stipulates that payments be made to the Annuitant at a later date, such as when the annuitant reaches a certain age.

Tax Sheltered Annuities
Tax sheltered annuities are a type of retirement plan for employees of tax-exempt organizations or schools, also known as a Section 403(b) plans.  The tax-sheltered annuities are made possible by "before-tax contributions," made via salary reduction agreements to the tax sheltered retirement plan.  Employers are also allowed to make direct contributions on behalf of employees.

Tax Incentives
Tax incentives allow corporations to receive credits or deductions ranging from 10% to 35% against the cost of equipment or installation to promote renewable energy equipment. In some cases, the incentive decreases over time.  Some states allow the tax credit only if a corporation has invested a certain dollar amount into a given renewable energy project. In most cases, there is no maximum limit imposed on the amount of the deductible or credit.

Term Certain Annuity
An annuity with income payments over a set number of years.

Term Life Insurance
Life insurance that provides protection for a specified period of time.  Common policy periods are one year, five years, 10 years or until the insured reaches age 65 or 70.  The policy doesn't build up any of the no forfeiture values associated with whole life policies.

Total Admitted Assets
This item is the sum of all admitted assets, and is valued in accordance with state laws and regulations, as reported by the company in its financial statements filed with state insurance regulatory authorities.  This item is reported net as to encumbrances on real estate (the amount of any encumbrances on real estate is deducted from the value of the real estate) and net as to amounts recoverable from reinsurers (which are deducted from the corresponding liabilities for unpaid losses and unearned premiums).

Total Loss
A loss of sufficient size that it can be said no value is left.  The complete destruction of the property.  The term also is used to mean a loss requiring the maximum amount a policy will pay.

Transfer
The direct transfer of funds from one financial institution to another financial institution for the benefit on an individual.

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U

Underlying Portfolios
The stocks, bonds, cash equivalents or other investments purchased with the money you invest in an annuity.

Underwriter
A technician trained in evaluating risks and determining rates and coverage for them.  When an application is submitted to the insurer, it is the underwriter who gathers all the necessary information to determine whether a person is a preferred risk, a standard risk, or rated.

Underwriting
The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned.  The process also includes rejection of those risks that do not qualify.

Underwriting Guide
Details the underwriting practices of an insurance company and provides specific guidance as to how underwriters should analyze all of the various types of applicants they might encounter.  Also called an underwriting manual, underwriting guidelines, or manual of underwriting policy.

Uniform Gifts to Minors Act / Uniform Transfers to Minors Act (UGMA/UTMA)
This particular legislation allows gifting to the name and taxpayer identification number of a minor.  It may provide a tax benefit because some or all of the income produced by the investment may be taxed at the rate for the minor's presumably lower income.

Universal Life Insurance
An interest sensitive life insurance policy that builds cash values.  The premium payer has control on how the policy is structured.  He has the flexibility to vanish the premiums (pay no more premiums based on assumptions that are not guaranteed) or have the premiums continue for life.  It is a matter of juggling 3 variables.  The assumed interest rate, the cash value and the premium payment plan.

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V

Valuation
A calculation of the policy reserve in life insurance.  Also, a mathematical analysis of the financial condition of a pension plan.

Valuation Reserve
A reserve against the contingency that the valuation of assets, particularly investments, might be higher than what can be actually realized or that a liability may turn out to be greater than the valuation placed on it.

Variable Annuitization
The act of converting a variable annuity from the accumulation phase to the payout phase.

Variable Annuity
With billions of investment dollars going into mutual funds, insurance companies created a competing product called Variable Annuities that allows you to invest your money within investment portfolios called subaccounts.  Unlike other annuities, a variable annuity does not guarantee a set rate of interest or earnings, being based instead off fund performance and account averages.  However you can buy, sell and switch funds at any time without incurring taxes until you begin to withdraw your original investment and income after age 59 ½.  At that time your gains are taxed as ordinary income. of time.  Transfers between your portfolios can also reduce tax burdens.

Variable Life Insurance
A form of life insurance whose face value fluctuates depending upon the value of the dollar, securities or other equity products supporting the policy at the time payment is due.

Variable Universal Life Insurance
A combination of the features of variable life insurance and universal life insurance under the same contract.  Benefits are variable based on the value of underlying equity investments, and premiums and benefits are adjustable at the option of the policyholder.

Viatical Settlement Provider
Someone who serves as a sales agent, but does not actually purchase policies.

Viator
The terminally ill person who sells his or her life insurance policy.

Voluntary Reserve
An allocation of surplus not required by law.  Insurers often accumulate such reserves to strengthen their financial structure.

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W

Waiting Period
See "elimination period."

Waiver of Premium
A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury.  The waiver of premium for disability remains in effect as long as the ensured is disabled.

Whole Life Insurance
Life insurance that is kept in force for a person's whole life as long as the scheduled premiums are maintained.  All Whole Life policies build up cash values.  Most Whole Life policies are guaranteed as long as the scheduled premiums are maintained.  The variable in a whole life policy is the dividend, which could vary depending on how well the insurance is doing.  Policyholders can use the cash from dividends in many ways.  The three main uses are: It can be used to lower or vanish premiums, it can be used to purchase more insurance or it can be used to pay for term insurance.

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X

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Y

Yield on Invested Assets
Annual net investment income after expenses, divided by the mean of cash and net invested assets.  This ratio measures the average return on a company's invested assets.  This ratio is before capital gains/losses and income taxes.

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Z

 

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