GLOSSARY OF INSURANCE AND ANNUITIES TERMS

(Note: The definitions which follow are those which are commonly used. However, if your policy defines the term differently, that definition is the one that will prevail in almost all circumstances.)

Accumulation Period
The period during which you pay premiums on a deferred annuity.

Accumulated Value
The actual amount of money in your annuity account when the payout period starts.

Administrative Fees
An amount deducted from the life insurance policy or annuity to pay the costs of marketing or administering the life insurance policy or annuity.

Amendment
An attachment to a life insurance policy that modifies certain policy benefits.

Agent Commission
The money paid to an insurance agent for selling an insurance policy or annuity. A commission is almost always calculated as a percentage of the premium.

Annuitization Period
The period of time in which you receive payments from the annuity.

Annuity
A contract in which a buyer deposits money with a life insurance company for investment. The contract provides for payments to be made at regular intervals for a fixed time period or for life. Assignment
The transfer to another person of all or part of a policy owner's legal title and rights to a policy. These may be irrevocable (can never be changed) or collateral (some rights are transferred, or for a certain period of time.)

Beneficiary
The person or entity designated to receive the death benefits from a life insurance policy or annuity contract when the insured person dies.

Benefit Rate
Insurance companies usually express the rates for annuity payout plans in terms of a monthly income per $1,000 applied. The company multiplies the value of the accumulation fund by this rate to determine the monthly payments which you will receive during the payout period.

Cash Surrender Value
The amount of cash that is due the policy owner who surrenders a life insurance policy. Surrendering the entire value, with termination of all insurance benefits, is often called "cashing out".

Churning
A fraudulent practice in which insurance agents mislead consumers into giving up the cash value, or taking loans against current life policies to buy new policies with a new company or with the same company. Since agents receive a commission when a new policy is purchased, the agent "churns" policies to make more money for himself or herself.

Death Benefit
Amount paid to the beneficiary upon the death of the insured.

Deferred Annuity
An annuity, the income benefits from which begin at some designated future date (as contrasted to an annuity the benefits from which begin at once, called an Immediate Annuity).

Dividend
Money paid annually to a policyholder as a partial return on the paid premium. Many times a policyholder can use dividends to increase the cash value or death benefits.

Evidence of Insurability
A signed health questionnaire or a physical examination, depending on a company's requirement.

Face Value
The initial amount of death benefit provided by the policy as shown on the front page of the contract. The actual death benefit may be higher or lower depending on the options selected, outstanding policy loans or premium owed.

Flexible Premium Annuity Contract
An annuity that permits varying premium payments from year to year, and which is often used for IRAs.

Free-Look Period
The time period after a life insurance policy or an annuity is delivered during which the policy owner may review it and return it to the company for a full refund of the initial premium.

Grace Period
The time, usually 30 days, during which a policy remains in force after the premium is due but not paid. The policy lapses as of the day the premium was originally due unless the premium is paid before the end of the 30 days or the insured dies during the grace period.

Guaranteed Insurability Rider
A rider attached to a life insurance policy which permits you to buy additional insurance at one or more specified "option dates" without providing new evidence of insurability at that time.

Guaranteed Minimum Interest Rate
The lowest interest rate a company will credit to a fixed annuity accumulation fund.

Immediate Annuity
Annuity payments that begin immediately or within about a year after the time you purchase the annuity.

Incontestability
A provision that places a two-year time limit on a company's right to deny payment of a claim because of a material misrepresentation on your application.

Initial Interest Rate
The interest rate that the insurance company credits to your premium when first issuing the policy. The company may guarantee this rate for one or more years. Otherwise, the rate is not guaranteed, and may change at the discretion of the company.

Lapse
Termination of a policy because of failure to pay the premium.

Load
Any sales fees or charges you pay in purchasing a policy or annuity.

Material Misrepresentation
A significant misstatement in an application form. If a company had access to the correct information at the time of application, the company might not have agreed to accept the application.

Paid-Up Additions
Additional life insurance purchased with policy dividends. No additional premium payments are needed for paid-up additions.

Payout Period
The period during which you receive the income from your annuity. Also known as the annuitization phase.

Policy Owner
The person who owns an individual life insurance policy or annuity. This person may be the insured, the annuitant, the beneficiary or another person. The policy owner usually is the one who pays the premium and is the only person who may make changes to a policy.

Rated Policy
A policy issued at a higher premium to cover a person classified as a greater-than-average risk, usually due to impaired health or a dangerous occupation.

Replacement
A replacement happens when a consumer uses some or all of the value of life insurance or an annuity that the consumer currently owns to buy a new life insurance policy or annuity contract.

Rider
A written amendment attached to an insurance policy expanding or limiting the benefits otherwise payable under an insurance policy.

Scheduled Premium Annuity Contract
An annuity that defines, in the contract, the size and frequency of premiums you must pay.

Surrender Charges
Charges that are deducted if your life insurance policy or annuity is cashed in (surrendered). The amount of the surrender charges vary widely among insurance companies and may change over the life of the policy.

Tax-Qualified Annuity
An annuity that allows you to deduct your premium payments from your taxable income when filing your tax return with the IRS.

Underwriter
The person who reviews an application for insurance and decides if the applicant is acceptable and at what premium rate.