Insurance and Investments Terms Connie Dello Buono Financial Rep San Jose CA CA Life Lic 0G60621 408-854-1883Accelerated Benefits/Living Benefits Riders: Theseriders let policyholders, which may be terminally ill orcritically ill, draw upon a percentage of the face value oftheir life insurance policies. Conditions under which thisoption can be exercised and the amount available to thepolicyholder can vary with each insurance company.Accidental Death Benefit: An extra feature of a lifeinsurance policy that provides an additional benefit if theinsured dies in an accident. Because the face amount ofthe policy is often doubled under this proportion.Accumulation Period: The period of time in a deferredannuity during which the purchase price is depositedwith the insurer and accumulated at interest. It endswith the start of the liquidation period.Activities of Daily Living (ADLs): Activities such aseating, bathing, and dressing. The inability to perform aspecified number of these activities triggers eligibility forbenefits in a long-term care insurance contract.Actual Cash Value: A process for valuing property loss.Usually it is defined as replacement cost lessdepreciation but in some states is defined as fair marketvalue.Adverse Selection: Selection against the insurancecompany. It is the tendency for those who know that
they are highly vulnerable to specific pure risks to bemost likely to acquire and to retain insurance to coverthat loss.Agent: Consumers primary link to an insurancecompany. Agents work with consumers to assess theirneeds and plan for long-term financial stability. Agentsmay also be referred to as insurance advisors, financialadvisors, financial representatives, associates, lifeunderwriters, and field underwriters.Annual Exclusion: The amount of a gift exempt fromfederal transfer taxation. Currently it is $10,000 annuallyfor gifts to any one person. This can be increased to$20,000 if the donor is married and the donors spouseelects to split the gift on a timely filed gift tax return.Annuity: A financial contract that provides continuingincome, typically for retirement.Annuitization: The conversion of an accumulated sumof money into benefit-paying status as an annuity.Application for insurance: A form that furnishes theinsurance company with necessary information on theapplicants age, sex, address, occupation, earnings,height, weight, medical history and other facts. Thecompany uses this information to determine whether ornot to insure the applicant.Automatic Premium Loan Option: An optionassociated with a cash value life insurance policywhereby, if a renewal premium is not paid by the end ofthe grace period, the insurer creates a loan against thecash value in the amount of the unpaid premium.Basis Point: One one-hundredth of a percentage point(for example, a rise in yield from 6 percent to 6 3/4percent is a gain of 75 basis points)Binder: A written or oral agreement between an agentand an applicant for insurance whereby the principal-
insurer is committed to provide the desired insurance, atleast on a temporary basisBuy-sell Agreement: A contract binding the owner of abusiness interest to sell the business interest for aspecified or determinable price at his or her death ordisability and a designated purchaser to buy at thattime.Cafeteria Plan: An employee benefit plan under whichan employee can use a specified amount of employerfunds and/or salary reductions to design his or her ownbenefit package from an array of available benefits.Cancelable: A contract in which the insurance companyreserves the right to terminate the coverage at any time(and perhaps for any reason) during the term ofcoverage by providing notice to the insured.Capital Needs Analysis: A system for determining howmuch life insurance a client needs if the principal sum isto be preserved in the process of meeting the financialobjectives for his or her survivors.Cash Value: The savings element that builds up in apermanent life insurance policy, an endowment policy, oran annuity contract.COBRA: A provision of the Consolidated OmnibusBudget Reconciliation Act of 1985 that requires grouphealth plans to allow employees and certain beneficiariesto elect that their current health insurance coverage beextended at groups rates for up to 36 months, followinga qualifying event that results in the loss of coverage. The provision applies only to employers with 20 or moreemployees. In addition, a person electing COBRAcontinuation can be required to pay a premium equal toas much as 102 percent of the cost to the employee
benefit plan for the period of coverage for a similarlysituated active employee to whom a qualifying event hasnot occurred.Coinsurance: The percentage of covered expensesunder a major medical plan that is paid once adeductible is satisfied. The most common coinsurance is80 percent. A provision whereby a property owner mustshare in a loss if the amount of insurance carried is lessthan a specified percentage of value. A reinsurancearrangement in which a primary life insurance companycedes a specified percentage of the face amount of apolicy or block or policies to a reinsurer.Comparative Negligence: The legal principle wherebyan injured party can recover a portion of the damage forhis or her injuries if he or she were also negligent. Insome jurisdictions, a plaintiff can recover only if his orher negligence is less (or not more) than the defendantsnegligence.Conditional Receipt: A receipt given to an applicant oflife insurance in exchange for the payment of the firstpremium in which the insurer, through its agent,specifies that the coverage will be effective as of thedate of the receipt, subject to the condition that theproposed insured later be found to have been insurableas of the date the receipt was issued.Contestability Period: Usually a specific time frame,commonly two years, during which the insurer may denycoverage, void a contract or question the validity of aclaim.Contingent Beneficiary: The person designated toreceive the death proceeds of a life insurance policy ifthe primary beneficiary predeceases the insured.Contingent Liability: Legal liability that arises becauseof work performed by an independent contractor, such as
a subcontract of a business.Cross-purchase Agreement: A business buy-sellagreement in which the surviving co-owners will be thepurchasers of the business interest of a deceased owner.Conversion: A provision in a group benefit plan thatgives an employee whose coverage ceases the right toconvert to an individual insurance policy withoutproviding evidence of insurability. The conversion policymay or may not be identical to the prior group coverage.Convertibility: A feature in term life insurance thatallows the insured to replace the term coverage withpermanent individual life insurance without having toshow evidence of insurability. In group insurance, theright is available only at certain times, includingtermination of the insured from the group or from aneligible class within the group.Coordination of benefits: Coordination of benefitsprevents duplication or overlapping for the sameexpense when a policyholder owns two or more grouppolicies. This allows one insurance carrier to be aware ofany other insurance coverage the policyholder may have.The two companies determine which company has theprimary responsibility to pay and which company has thesecondary responsibility after the benefits from theprimary insurer are exhausted.Co-insurance: A provision of a medical expenseinsurance policy that requires the insured to pay apercentage of all eligible medical expenses, in excess ofthe deductible, that result from sickness or injury.Cost-of-Living Adjustments (COLA): Increases inbenefit levels because of changes in some index, such asthe CPI. These increases apply to Social Security income
benefits and sometimes to benefits under privateinsurance and retirement programs.Deductible: The amount a policyholder must pay beforeinsurance covers any expenses. The insurance programpays benefits only for losses over the amount stated inthe deductible provision.Dependent: Most commonly defined under a groupmedical expense plan to include an employees spousewho is not legally separated from the employee and anyother unmarried dependent children (includingstepchildren and adopted children) under age 19 or, iffull time students, age 23.Disability Insurance: Health insurance designed toprovide financial payments to replace an insuredsincome if he/she is unable to work due to an illness orinjury.Dividend Options: A set of provisions in a participatinglife insurance policy that describe how the policyownercan use the dividends, usually to reduce the premiumpayment, to buy additional paid-up permanentinsurance, to accumulate at interest, to buy terminsurance, or to make the policy a paid-up policy at anearlier age than originally planned.Elimination period or waiting period: The time apolicyholder must be insured under the policy beforehe/she is eligible for benefits.Endorsement: A provision added to a property orliability insurance policy, sometimes for an extrapremium charge, by which the scope of the policyscoverage is clarified, restricted, or enlarged.Endowment: A type of life insurance policy that paysthe face amount if the insured dies during a specificperiod of time and also pays the face amount if he or shelives to end of that period.
Errors and Omissions Insurance: A type ofprofessional liability for those in occupations such as realestate appraising and accounting, where theprofessionals acts or omissions are unlikely to result inbodily injury.Estate Tax: A tax imposed upon the right of a person totransfer property at death. The federal government andmany states levy such taxes.Exclusions: This term refers to losses or risks that apolicy does not cover.Exclusion Ratio: The ratio used to determine theportion of the benefit payment from an annuity that istax free as a return of the investment in the contract. Itis the ratio of the total amount invested to the totalamount expected to be received.Extended Care Facility: A skilled nursing home orehabilitation center equipped to provide full nursingcare that has a transfer agreement with a hospital.Fiduciary Bond: A bond that guarantees that a personwho is responsible for the property of another faithfullyexercises his or her duties, gives proper accounting ofany property received, and makes proper indemnificationif the court determines that the principal is responsiblefor any financial loss that relates to the property. It isoften required of persons who act as administrators,trustees, or guardians.Face amount: The amount stated on the policy that willbe paid at death or maturity. It does not includeadditional amounts payable under accidental death orother special provisions, or acquired through the use ofpolicy dividends.Fifth Dividend Option: A provision in cash value lifeinsurance whereby dividends can be used to purchaseincreasing term insurance.
Fixed Annuity: An annuity that provides a stated dollarbenefit, regardless of the insurers investment return.Free-look period: Time during which the policyholdermay return the policy if he/she is not completelysatisfied and receive a complete refund. The customarylength of time for a "free look" is 30 days for policiespurchased through the mail and 10 days for thosepurchased from an agent.General Agent: In the legal sense, an agent who hasthe authority to bind the insurance company on a risk. Inlife insurance marketing, the term refers to anentrepreneur who is granted a franchise by an insurer tobuild an agency force for the marketing of the insurersproducts in a given geographic area.Grace Period: An additional period of time, usually 31days, granted in some types of insurance for thepolicyowner to pay the premium after it has becomedue. During the grace period, the coverage remains inforce.Guaranteed Renewable: A policy that is renewable atthe policyholders option and cannot be terminated bythe insurance company.Health Maintenance Organization (HMO): Amanaged system of health care that provides acomprehensive array of medical services on a prepaidbasis to voluntarily enrolled persons living within aspecific geographic region. HMOs both finance healthcare and deliver health services. There is an emphasison preventive care as well as cost control.Health Savings Accounts (HSAs): An HSA is a tax-exempt trust or custodial account established for thepurpose of paying medical expenses in conjunction with
a high-deductible health plan. The HSA cannot standalone — it can only be combined with a high deductiblehealth insurance plan. A number of the rules that applyto HSAs are similar to rules that apply to individualretirement arrangements (IRAs).Hold-Harmless Agreement: An agreement in whichone party, such as a tenant, accepts the responsibility ofanother party, such as a landlord, for losses that wouldotherwise fall on that other party.Hospice: A health care facility or service that providesbenefits to terminally ill persons. The emphasis is oneasing the physical and psychological pain associatedwith death rather than on curing a medical condition.Hospital Indemnity Insurance: A medical expensepolicy that pays a fixed dollar amount for each day aperson is hospitalized, regardless of other insurance.Implied Warranty: An obligation imposed by law onthe manufacturer or distributor of products.Inflation Guard Endorsements: A homeownersendorsement that provides an automatic increase forproperty coverages. The policyowner selects the annualpercentage rate.Insurable Interest: A right or relationship with regardto the subject matter of an insurance contract such thatthe insured will suffer financial loss from damage, loss,or destruction to that subject matter.Joint-and-Last-Survivor Annuity: An annuity whosebenefit payments continue until the last death amongspecified lives.Joint-Life Policy: A type of life insurance policycovering two or more persons in which the proceeds arepayable on the death of the first one to die.Life Annuity Certain: A life annuity that provides a
guaranteed minimum number of benefit paymentswhether the annuitant live or dies. It is a combination ofan annuity certain and a pure deferred life annuity.Liquidity: The ability to convert an investment assetinto cash quickly without loss of value.Long-Term Care Insurance: A form of healthinsurance that usually provides coverage for custodialcare, intermediate care, and skilled-nursing care.Benefits may also be available for home health care,adult day care, and assisted living. Benefits are usuallylimited to a specified dollar amount per day.Loss Ratio Method of RateMaking: A method in whichthe actual loss ratio is compared to the desired orexpected loss ratio to determine the change needed inan existing insurance rate.Major Medical Insurance: A medical insurance plandesigned to provide substantial protection againstcatastrophic medical expenses. There are a fewexclusions and limitations, but deductibles andcoinsurance are commonly used.Managed Care: A process to deliver cost-effectivehealth care without sacrificing quality or access.Common characteristics include controlled access toproviders, comprehensive case management, preventivecare, risk taking, and high-quality care.Marital Deduction: An unlimited amount that can betaken as a deduction against the federal gift and estatetax for transfers to the donors spouse.Medicaid: A joint federal and state program to providemedical expense benefits for certain classes of low-income individuals and families.Medical Savings Account: An alternative to first-dollar
coverage under a medical expense plan. An employee isgiven medical expense coverage that has a highdeductible, and money is deposited into the medicalspending account so that the employee can pay forexpenses below the deductible amount. Any monies notused at the end of the year are paid to the employee.Medicare: The health insurance portion of the SocialSecurity program that is available to persons age 65 orolder and limited categories of persons under age 65.Medigap Policy: An individual health insurance contractthat covers certain expenses not covered by Medicare.These expenses include such items as deductibles,copayments, and noncovered services like prescriptiondrugs.Net Payment Cost Index: A method of estimating thenet cost of life insurance on a time-value-adjusted basisif the policys death benefit is paid at the end of aspecified time period.No-Fault: A modification of the traditional tort liabilitysystem that provides first-party benefits to injuredpersons and imposes some restrictions on their rights tosue negligent parties.Noncancelable: An insurance contract in which theinsured has the right to renew the coverage at eachpolicy anniversary date, usually up to some stated age,and the coverage may not be terminated by the insurerduring the term of coverage. Also the rates for thecoverage are guaranteed in the contract, though theyare not necessarily level.Nonforfeiture Value: The savings element inpermanent life insurance policies. Also sometimes calledthe cash value.Nonparticipating Policy: A type of insurance policy onwhich no dividends are paid to the policyowner, but it
has a fixed premium that is often lower than that of aparticipating policy.OASDHI: The old age, survivors, disability, and heathinsurance program for the federal government. Thisprogram consists of Social Security and Medicare.Option Renewable Policy: The company may or maynot renew the policy at each premium due date. Thepolicy cannot be cancelled between such dates.Other than Collision: The term used in automobileinsurance to refer to physical damage to a vehicle that isnot caused by collision (formerly referred to ascomprehensive).Pain and Suffering: Intangible losses arising frombodily injury.Participating Party: A life insurance policy thatdistributes company surplus funds to policyholders asdividends.Permanent life insurance policy: Type of lifeinsurance (other than term insurance) that accrues cashvalue and is designed for long-term, or permanent,needs of a policyholder. Includes whole, universal andvariable life, among others.Personal Injury Protection (PIP): The usual namethat is applied to a states no-fault benefits.Personal Property Floater: A policy to provide "all-risks" coverage for unscheduled personal property on aworld-wide basis.Policyowner: The person or organization that owns aninsurance policy. The policyowner generally has the rightto change, renew, or cancel the policy and the obligationto comply with policy conditions, such as premiumpayments.Preexisting Condition: An illness or condition of healththat originated prior to the issuing of the policy.
Preferred Provider Organization (PPO): A group ofhealth care providers that contracts with employers,insurance companies, union trust funds, third-partyadministrators, or others to provide medical careservices at a reduced fee. PPOs can be organized by theproviders themselves or by organizations such asinsurance companies, the Blues, or groups of employers.Premium: The price charged for a period of coverageprovided by an insurance policy and found by multiplyingthe rate by the number of units of coverage.Presumed Negligence: Negligence that can beassumed from the facts of certain situations. It can occurif (1) the action would not normally cause injury withoutnegligence, (2) the action is within the control of theparty to be held liable, and (3) the party to be held liablehas superior knowledge of the cause of the accident orthe injured party is unable to prove negligence.Primary Beneficiary: The beneficiary in a life insurancepolicy who is first entitled to receive the policy proceedsupon the insureds death.Primary Insurance Amount (PIA): The amount aworker will receive under Social Security if he or sheretires at age 65 or becomes disabled. It is also theamount on which all other Social Security incomebenefits are based.Real Property: Land and anything that is growing on it,erected on it, or affixed to it, and the bundle of rightsinherent in the ownership.Rehabilitation Benefit: A benefit under workerscompensation laws or disability income plans thatprovides rehabilitative services for disabled workers.Benefit may be given for medical rehabilitation and forvocational rehabilitation, including training, counseling,
and job placement.Replacement: The replacing of one life insurance policywith another. To prevent financial harm to thepolicyowner, agents and insurers must follow prescribedprocedures.Rider: The term used in life insurance in place of theterm endorsement.Settlement Options: The ways that policyholders orbeneficiaries may choose to have benefits paid otherthan a lump sum.Split-Dollar Life Insurance: A plan under which twoparties, usually an employer and an insured employee,share the premium costs, death proceeds, and perhapscash value of a life insurance policy pursuant to aprearranged agreement.Stop-Loss Limit: The maximum amount of out-of-pocket medical expenses that a covered person mustpay in a given period (usually one year). After this limitis reached, future copayments and deductibles arewaived for the remainder of the period.Subrogation: A process by which an insurer takes overthe legal rights its insured has against a responsiblethird party.Suicide Clause: A life insurance policy provision thatspecifies that if the insured, whether sane or insane,commits suicide during the first one or 2 years of thepolicy, the insurer will be liable only for a return of thepremium.Surgical Schedule: A list of the cash amounts that willbe paid for various types of surgery with the amountpayable generally based upon the seriousness of theoperations.Term Insurance: Life insurance written for a specifictime period and payable only if the policyholder dies
within that time period.Time limit on certain defenses: This clause in aninsurance policy is required under state law. After twoyears, misstatements on the application, (exceptfraudulent ones), can not be used to void the policy ordeny a claim. At the end of the two-year period, a claimmay not be denied on the grounds that a disease orphysical condition, not specifically excluded by name,had existed before the policy went into effect.Title Insurance: Protection for the purchaser of realestate against defects in title that occurred prior to theeffective date of coverage but are discovered after theeffective date.Umbrella Liability Insurance: A personal or businessliability policy that provides high limits for a broad rangeof liability situations. The policyowner is required to haveunderlying liability coverage of specific amounts. Claimsnot covered by the underlying insurance are subject to aself-insured retention.Uninsured Motorist Coverage: An automobileinsurance coverage that enables an insured to collectfrom his or her own insurance company for bodilyinjuries (and property damage in a few states) that arecaused by a legally liable, but uninsured driver.Universal life insurance: A flexible life insurance policyallowing the policyholder to change the death benefitfrom time to time, and vary the amount or time of apremium payment.Variable life insurance: Life insurance under which thebenefits vary, but never below a guaranteed minimumbenefit, based on the value of assets behind the contractat the time the benefit is paid.Variable Universal Life Insurance: A type of lifeinsurance policy that combines the premium flexibility
features of universal life insurance with the policyowner--directed investment aspects of variable life insurance. Whole Life: Life insurance coverage that remains in force during the insureds entire lifetime, provided premiums are paid as specified in the policy.Investment TermsABCDEFGHIJKLMNOPQRSTUVWXYZ Bear Market: A term for stocks, bonds, or commodities markets when prices decline for an extended period. Bond: A debt instrument sold to raise capital. If you invest in a bond, you are essentially lending money for a period of more than one year to the institution that sold it to you. Federal and local governments as well as commercial companies are among institutions that sell bonds. Bull Market: A term for stock, bond, or commodities markets when prices increase for an extended period. Capital: Accumulated assets, often providing a stream of income. Capital Gain: Profit realized on the sale of securities. An unrealized capital gain is an increase in the value of securities that have not been sold. Certificate of Deposit (CD): A low-risk, low-return debt instrument offered by a bank. CDs pay interest (set by the bank) over a designated period of time, such as a seven-month CD. You will likely pay a fee for early withdrawal of funds. Certified Financial Planner (CFP): Professional who has attained a high degree of technical competency in financial planning and has passed a series of professional
examinations.Chartered Financial Consultant (ChFC): An individualwho has attained a high degree of technical competencyin the fields of financial planning, investments, and lifeand health insurance and has passed ten professionalexaminations administered by The American College.Chartered Life Underwriter (CLU): An individual whohas attained a high degree of technical competency inthe fields of life and health insurance and who isexpected to abide by a code of ethics. Must haveminimum of three years of experience in life or healthinsurance sales and have passed ten professionalexaminations administered by The American College.Chartered Property and Casualty Underwriter(CPCU): Professional who has attained a high degree oftechnical competency in property and liability insuranceand has passed ten professional examinationsadministered by the American Institute for Property andLiability Underwriters.Common Stock: Securities that represent an ownershipinterest in a corporation.Deferred Annuity: A financial product that allows youto accumulate money on a tax-deferred basis, whenpurchased from an insurance company, that cansubsequently be paid out as income or taken in a lumpsum.Diversification: The use of a variety of investmentvehicles in order to earn higher returns or to be exposedto less risk.Dollar-cost averaging: A formula plan for timing ofinvestment transactions, in which a fixed dollar amountis invested in a security in each period; a passive buy-and-hold strategy in which the amount of periodicinvestment is held constant.
Equity: Interest or ownership right; the value of theportion of an investment that you own.Estate: The assets and liabilities of a person left atdeath.Estate Planning: Developing a plan to transfer all ofyour property from one generation to the next or withina generation.Financial Planning: The process of developing andimplementing a coordinated plan for achievement offinancial objectives. It could include income tax planning,retirement planning, investment planning, insurance andrisk management, and estate planning.Hedging: Technique for transferring the risk ofunfavorable price fluctuations to a speculator bypurchasing and selling options and futures contracts onan organized exchange.Indexing: Adjusting of values over time to reflect theimpact of inflation.Individual Retirement Account (IRA): An account towhich an individual can save for retirement on a tax-favored basis. Contributions to a standard IRA are taxdeductible for many workers; contributions to a Roth IRAare made with after-tax dollars but can be withdrawntax-free at retirement.Insolvent: Having insufficient financial resources(assets) to meet financial obligations (liabilities).Inter vivos Trust: A trust created while the creator ofthe trust is living. Also known as a living trust.Irrevocable Trust: A trust in which the creator doesnot reserve the right to reacquire the trust property.Money Market: A short-term debt instrument, such asa negotiable certificate of deposit (CD) or Treasury bill.Mutual Fund: A professionally managed fund thatinvests money from you and other shareholders in a
group of assets, such as stocks, bonds, commodities, orother securities.No-Load Fund: A mutual fund in which you do not payan up-front sales fee.Revocable Trust: A trust that can be terminated orrevoked by its creator.Rollover: Transfer of IRA or other qualified pensionfunds from one financial institution (trustee) to another.Roth IRA: An special type of individual retirementaccount to which an individual can make contributionswith after-tax dollars. Funds can be withdrawn tax-freeat retirement.Stock Company: A company organized and owned bystockholders, as distinguished from the mutual form ofcompany which is owned by its policyholders.Stock Exchange: An organization that provides afacility for buyers and sellers of listed securities to cometogether to make grades in those securities.Stockholder (or shareholder): A person who ownsshares of stock in a corporation.Stock Insurance Company: A company in which thelegal ownership and control is vested in the stockholders.Stock Life Insurance Company: A life insurancecompany owned by stockholders who elect a board todirect the companys management. Stock companies, ingeneral, issue nonparticipating insurance, but may alsoissue participating insurance.Stock Redemption Plan: an entity purchase form ofbuy-sell agreement within a corporation that involves thecorporation buying back shares from a departing owner.Trust: A legal instrument allowing one party to controlproperty for the benefit of another.Variable Annuity: An annuity contract in which theamount of each periodic income payment may fluctuate.
The fluctuation may be related to securities marketvalues, a cost of living index, or some other variablefactor.Variable Annuity: An annuity under which the benefitvaries according to the investment results of a lifeinsurance companys separate account (usually investedprimarily in common stocks).Variable Life Insurance: Life insurance under whichthe benefits relate to the value of assets behind thecontract at the time the benefit is paid. The amount ofdeath benefit payable would, under variable life policiesthat have been proposed, never be less than the initialdeath benefit payable under the policy.