Glossery of Terms.txt

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GretchenRicker
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189363
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Glossery of Terms.txt
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2012-12-13 19:08:44
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Life Insurance Terms
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Terms for studying for the California Life Insurance Exam
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  1. Accumulation Value
    Term used in Universal Life policies to describe the total of all premiums and earnings credited to the account before deductions for any expenses- loans- and surrenders.
  2. Adjustable Life
    Form of life insurance allowing the owner to change the face amount- premium amount-period of protection- or the length of the premium payment period.
  3. Attained Age
    The age of the insured on a given date.
  4. Automatic Premium Loan
    Provision in a life insurance policy authorizing the insurer to use the loan value to pay any premiums still due at the end of the grace period.
  5. Beneficiary
    Individual or entity (e.g.- trust- corporation) designated to receive the proceeds of a life insurance policy upon the death of the insured.
  6. Cash Value
    Generally- the amount of cash due an owner upon surrendering a policy.
  7. Contingent Beneficiary
    Individual or legal entity designated to receive the proceeds of a life insurance policy if the primary beneficiary is deceased at the time the benefits become payable.
  8. Contributory
    Term used to describe a plan of employee coverage in which the employee pays at least part of the premium.
  9. Cost-of-Living Rider
    Designed to adjust benefits in relation to changes in the cost of living. The majority of such riders are tied to changes in the Consumer Price Index (CPI). Generally- the amount of insurance is automatically increased- without evidence of insurability- at predetermined periods for a maximum amount.
  10. Credit Life Insurance
    Group life insurance contract whereby a creditor is protected in the event of death of the insured prior to the indebtedness being paid in full.
  11. Death Benefit
    Amount stated in a policy contract as payable upon the death of the person whose life is being insured.
  12. Decreasing Term
    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.
  13. Dependent Coverage
    Coverage on the head of a family which is extended to his or her dependents-including only the lawful spouse and unmarried children who are not yet employed on a full-time basis. "Children" may be step- foster- adopted- or natural.
  14. Dependent Life Insurance
    Benefit that is part of a group life insurance contract- providing death protection to the eligible dependents of a covered employee.
  15. Dividend Accumulation
    Option in a life insurance policy allowing the policyholder to leave any premium dividends with the insurer to accumulate at compound interest.
  16. Dividend Additions
    Option whereby the owner can leave policy dividends with the insurer- and each dividend is used to buy a single premium life insurance policy for whatever amount it will purchase. Also called paid-up additions.
  17. Dividend Option
    Alternative ways in which an insured under a participating life insurance policy may elect to receive policy dividends.
  18. Extended Term Insurance
    Provision found in most policies which provides the option of continuing the existing amount of insurance as term insurance for as long a period of time as the contract's cash value will purchase. This is one of the nonforfeiture options available to the insured in case a premium is not paid within the grace period.
  19. Face Amount
    Amount that will be paid in the case of death or maturity of a policy.
  20. Family Income Policy
    Policy that pays an income up to a future date designated in the policy to the beneficiary after the death of the insured. The period of payment is measured from the date of the inception of the contract- and at the end of the income period the face amount of the policy is paid to the beneficiary. If the insured lives beyond the income period- only the face amount is payable in the event of his death.
  21. Flexible Premium
    Policy allowing the owner to vary the amount or timing of premiums.
  22. Free Look
    Period of time (usually 10- 20 or 30 days) during which a policyholder may examine a newly issued individual policy and surrender it in exchange for a full refund of premium if not satisfied for any reason.
  23. Grace Period
    Prescribed period- usually 30 to 31 days after the premium due date- during which an insurance contract remains in force and the premium may be paid.
  24. Group Life Insurance
    Life Insurance provided for members of a group. It is most often issued to a group of employees but may be issued to any group provided it is not formed for the purpose of buying insurance. The cost is typically lower than for individual policies because administrative expenses per life are decreased- there are certain tax advantages- and measures taken against adverse selection are effective.
  25. Guaranteed Renewable
    Contract in which the insured has the right to keep a policy in force by the timely payment of premiums for a period of time as set forth in the contract. During that period of time- the insurer has no right to make any change in any provision of the contract other than a change in the premium rate for all insureds in the same class.
  26. Incidents of Ownership
    Various rights which may be exercised under the policy contract by the policy owner. These include (1) the right to cash in the policy; (2) to receive a loan on the cash value of the policy; and (3) to change the beneficiary.
  27. Incontestable Clause
    Clause in a policy providing that after a policy has been in effect for a given length of time (typically two or three years)- the insurer shall not be able to contest the statementscontained in the application.
  28. Irrevocable Beneficiary
    Beneficiary that cannot be changed without his or her consent.
  29. Loan Value
    The amount of money a policy owner can borrow using the cash value of the life insurance policy as security.
  30. Maturity Date
    Date at which the face amount of a life insurance policy becomes payable by reason of endowment.
  31. Net Surrender Value
    Amount of cash due an owner upon surrendering a policy.
  32. Noncontributory
    Plan or program of insurance- usually a group program- for which the employer or sponsor pays the entire premium.
  33. Nonforfeiture Values
    Values in a life insurance policy that by law the policy owner cannot forfeit- even if ceasing to pay the premiums. Depending on state law- these benefits may include the cash surrendervalue- the loan value- the paid-up insurance value- and the extended term insurance value.
  34. Ordinary Life Policy
    Life insurance policy for which premiums are paid continuously as long as the insured lives.
  35. Permanent Life Insurance
    One of three basic types of life insurance (whole life- universal life- and endowment) that remains in force until the policy matures- unless the owner fails to pay the premium andthe cash value is insufficient to cover policy charges and expenses. The policy cannot be cancelled bythe insurer for any reason except fraud in the application; that cancellation must occur within a period oftime defined by law (usually two years). Over time- permanent insurance builds cash values which theowner can borrow against.
  36. Policy Loan
    Loan made by an insurer to a policy owner of part of or all of the cash value of the policy assigned as security for the loan.
  37. Policy Proceeds
    Amount paid on a life insurance policy at death or when the owner receives payment at surrender or maturity. This includes any dividends left on deposit and the value of any additionalinsurance purchased with dividends; it excludes any loans not repaid- plus unpaid interest on those loans.
  38. Primary Beneficiary
    First to receive proceeds or benefits from a policy when due.
  39. Proceeds
    (See Policy Proceeds)
  40. Rated
    Policies issued at a higher rate than standard due to impairment of the insured.
  41. Ratings
    Refers to the financial strength of an insurance company. AM Best- Standard and Poor's- and Moody's are three well-known rating services.
  42. Renewable Term
    Term insurance that may be renewed for another term without evidence of insurability.
  43. Return of Cash Value
    Provision in a life insurance policy that states that if death occurs during a certain period of years (often 20)- the policy will pay an amount- in addition to the face amount- equal to the cashvalue of the policy as of the date of death.
  44. Return of Premium
    Rider on a life insurance policy providing that- in the event of the death of the insured within a specified period of time- the policy will pay- in addition to the face amount- an amountequal to the sum of all premiums paid.
  45. Revocable Beneficiary
    Beneficiary in a life insurance policy in which the owner reserves the right to revoke or change the beneficiary.
  46. Secondary Beneficiary
    Individual or legal entity designated to receive the proceeds of a life insurance policy if the primary beneficiary is deceased at the time the benefits become payable. (See ContingentBeneficiary)
  47. Settlement Options
    Various methods for the payment of the proceeds of a life insurance policy that may be selected in lieu of a lump sum.
  48. Surrender
    Termination of a policy.
  49. Term Insurance
    Provides life insurance coverage for a specified term of years for a specified premium. Term policies do not accumulate cash value.
  50. Universal Life
    Combination flexible premium and adjustable life policy in which the owner may modify premium payments in response to changing needs and circumstances.
  51. Variable Life
    Policy featuring level premiums allowing the owner to allocate the cash value of the policy to a wide variety of investment accounts.
  52. Variable Universal Life
    Policy combining the features of variable life insurance and universal life insurance under the same contract. Benefits are variable based upon the value of variable sub accounts;premiums and benefits are adjustable by the owner.
  53. Waiver of Premium
    Provision of a life insurance policy that continues coverage without further premium payments due to the total disability of the insured.
  54. War Clause
    Provision excluding liability of an insurer if a loss is caused by war.
  55. 12b-1 Fees
    "12b-1" refers to the Securities and Exchange Commission (SEC) rule which permits money to be taken out of a fund 's assets to pay the expenses of distributing and marketing the fund. 12b-1 fees(similar to sales charges) may be used to compensate a broker or other financial advisor.
  56. Account Fee
    Fee charged by some funds to their shareholders in connection with the maintenance of their accounts.
  57. Account Minimum
    Some funds require an investor to make an initial minimum investment- often between $1-000 and $10-000.
  58. Asset-Based Sales Charge
    Fees taken out of a mutual fund's assets to pay for marketing and distribution expenses. Asset-based sales charges also include "12b-1" fees.
  59. Average Price Per Share
    One of three methods used to determine the cost basis of mutual fund shares. Average price per share is calculated by adding up the total cost of all shares owned and then dividing bythe total number of shares owned. (See also "First-In- First-Out (FIFO)" and "Specific Identification .")Also known as "Average Cost."
  60. Back-End Sales Charge
    A sales commission paid by mutual fund investors when they redeem shares. These charges typically decline after a certain time period has expired between the purchase and sale ofshares and are usually charged in one of two ways 1) as a percentage of the value of the shareholder'sinitial investment; or 2) as a percentage of the shareholder's investment upon redemption.
  61. Breakpoint
    A mutual fund may offer you a discount ("breakpoint") on the front-end sales charge if any one of the following conditions is met 1) you make a large purchase; 2) you already hold other mutualfunds in the same "fund family"; or 3) you commit to purchasing shares on a regular basis.
  62. Closed-End Fund
    A mutual fund with a fixed number of shares. Shares in a closed-end fund are traded on public exchanges.
  63. Contingent Deferred Sales Charge (CDSC)
    A sales commission paid by mutual fund investors when they redeem shares. These charges typically decline after a certain time period has expired between the purchase and sale ofshares and are usually charged in one  of two ways 1) as a percentage of the value of the shareholder'sinitial investment; or 2) as a percentage of the shareholder's investment upon redemption.
  64. Dollar Cost Averaging
    An investment strategy of buying- at regular intervals- equal dollar amounts of a security such as a mutual fund. When the share price drops- more shares are purchased; when theshare price rises- fewer shares are purchased.
  65. Exchange Fee
    Fee that some funds impose upon their shareholders if they exchange (transfer) to another fund within the same fund group or "fund family."
  66. Exchange-Traded Fund (ETF)
    An investment vehicle that is similar in concept to a mutual fund in that it pools the resources of many investors to achieve a pre-determined investment goal. A primary differenceis that shares of an ETF are traded on an exchange- rather than being purchased from- or redeemed by-the fund itself.
  67. Expense Ratio
    Percentage of assets used to cover all expenses associated with the operation of a mutual fund.
  68. Family Discount
    Allows an investor to combine purchases made by related individuals or in related accounts- to reach a higher breakpoint discount.
  69. First In-First Out (FIFO)
    One of three methods used to determine the cost basis of fund shares. Under FIFO- the shares sold are assumed to be the oldest shares owned. (See also "Average Price Per Share"and "Specific Identification.")
  70. Front-End Sales Charge
    A sales commission mutual fund investors pay immediately upon the purchase of shares.
  71. Fund Family
    A group of mutual funds offered by the same mutual fund manager. Generally- exchanges are permitted within the fund family for a modest fee.
  72. Investment Advisor
    Refers to the company in charge of the person or organization employed by a are permitted within the fund family for a modest fee.
  73. Load Fund
    A mutual fund which has a sales charge or commission.
  74. Letter of Intent (LOI)
    A statement signed by an investor that he or she intends to make additional future fund purchases- sufficient to reach a certain discount breakpoint. The LOI allows the investor to obtain areduced sales charge on all purchases made. If the investor does not invest the amount listed in the LOI-the mutual fund may retroactively levy the higher sales charge.
  75. Management Fees
    Fees paid out of the fund's assets to provide compensation to the fund's investment advisor and its affiliates for managing the fund's investment portfolio.
  76. Mutual Fund
    An investment vehicle operated by an investment company which pools the assets of many individuals. The money raised is then invested in accordance with pre-defined goals.
  77. Net Asset Value (NAV)
    The total market value of the securities held by a mutual fund- divided by the number of outstanding fund shares.
  78. No-Load
    A fund that does not charge any type of sales charge ("load").
  79. Open-End Fund
    A mutual fund that issues as many shares as the public wishes to buy. When an individual wants to sell- an open-end fund redeems all shares tendered.
  80. Operating Expenses
    These are the total expenses paid annually by a mutual fund- generally expressed as a percentage of net assets.
  81. Prospectus
    A document which explains a mutual fund's goals- risks- history- and any expenses or charges involved in owning shares of the fund. The prospectus is intended to provide the facts necessaryfor an investor to make an informed investment decision.
  82. Purchase Fee
    A type of fee charged by some funds when shareholders purchase their shares. Purchase fees are not considered sales charges ("loads") because they are paid directly to the fund andare not used to compensate outside brokers.
  83. Rebalancing
    An investment strategy which requires a periodic adjustment in the investment mix- to maintain a specific asset allocation or risk tolerance.
  84. Redemption Fee
    A type of fee that some funds charge their shareholders upon the redemption of shares. Although similar to a back-end or contingent deferred sales charge- redemption fees are notconsidered sales charges ("loads") because they are paid directly to the fund and not used tocompensate outside brokers.
  85. Right of Accumulation (ROA)
    The right to receive a discounted sales charge on current fund purchases by combining both earlier and current purchases to reach a specific discount breakpoint.
  86. Sales Charge
    A sales charge is a commission paid by investors who have purchased shares in a mutual fund. These charges vary from fund to fund and are generally used to provide compensation to outsidebrokers that distribute fund shares.
  87. Share Class
    A mutual fund with one investment advisor may offer more than one share "class" to investors. Each class represents a similar interest in the fund's portfoliO. The prinCipal difference betweenthe various share classes is that different fees and expenses apply to each class. The most commonshare classes are Class A- Class S- and Class C.
  88. Specific Identification
    One of three methods used to calculate the cost basis of mutual funds. When you sell or redeem shares- you specifically identify the shares (quantities and dates purchased) to be soldor redeemed. Example "Sell 300 of the shares of XYZ fund that I purchased on July 5- 1998." (See also"First-In- First Out (FIFO)" and "Average Price Per Share.")
  89. Statement of Additional Information (SAl)
    A highly detailed version of the prospectus. A SAl is usually written in technical- legal language and can be obtained either from the fund or from the Securities andExchange Commission (SEC).
  90. Turnover
    A measure of the length of time a fund holds the securities it purchases. When a fund purchases or sells securities- it incurs both trading expenses and potential capital gains or losses. Fundswith lower turnover typically have lower operating expenses; funds with higher turnover generally havehigher operating expenses.

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