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Glossary Accidental Death Benefit: Death benefit paid out in addition to the face amount of the policy if cause death is accidental. Accelerated Death Benefit: A rider added to life insurance policies that will allow you under specific circumstances to access part of the death benefit of your life insurance policy prior to your death. Specifics of the rider vary greatly by state and carrier. Annuities: Investment contracts with an insurance company that have certain tax and insurance advantages. Annuities can provide tax-deferred investment income and gains, and can be used to secure regular income for an annuity investor's lifetime. Assignment: Tranferance of ownership rights from one person or entity to another. Aviation Hazard: The extra risk an insurer takes on when an insured participates in aeronautics. This does not include paying passengers in licensed commercial aircraft. There may be an extra premium or waiver of benefit as a result. This will widely vary by carrier. Beneficiary: The person designated to receive the death benefit when the insured dies and benefits become payable. Benefit (Death Benefit, Insurance Benefit): In the context of financial services, usually one or more financial payments, or financial or tax savings. For example, life insurance pays a death benefit upon the death of the policyholder. This is an amount of money paid in cash to the policyholder’s beneficiaries. Cancellation Fees, Penalties, Charges: Terms included in certain types of financial products (for example, annuities or life insurance) that result in monetary penalties for cancellations before a specified time period. These penalties are separate from penalty taxes for early withdrawals specified by U.S. tax laws. *Withdrawals are also referred to as partial surrenders. Cash Value: Monetary amounts that can accumulate in permanent life insurance policies. A permanent life policyholder's premiums, net of insurance and administrative expenses, and other charges, contribute to the policy's cash value. Children's Level Term Life Insurance Rider: A term life insurance rider on the life insurance policy of a parent that will cover all children of the insured. It is a flat rate premium add on regardless of how many children are covered. Coverage typically ends after children reach a certain age. Cognitive Impairment: The loss of mental capacity, for example due to a stroke or dementia. A severe cognitive impairment, a common trigger for the payment of long term care insurance benefits, is defined as a state when a person requires supervision to avoid hurting themselves or others. Conditional Receipt: This is reciept that is given at time of application. States that if premium accompanies an application, the coverage (or coverage up to a certain limit) will be in force from the date of application, or medical examination, if any, whichever is later, provided the insurer would have issued the coverage at the rate applied on the basis of the facts revealed on the application, medical examination and other usual sources of underwriting information. Contestable Clause: Provision within an insurance contract stating the conditions under which or the period of time during which the insurer may contest or void the policy. A good example would be a two-year suicide contestable clause within a life insurance contract. Contingent Beneficiary: The person or entity that would receive the death benefit proceeds if the primary beneficiary is deceased at the time benefits become payable. Convertible: Typically a term life insurance policy provision that allows the contract to be converted to a permanent life insurance contract. This conversion takes place without you having to take another medical exam or reapply, no matter what may have changed in your health. This option provides reassurance and flexibility should your health or insurance needs change after your original purchase. Not all term life insurance contracts are convertible but most are. Premiums reflect attained age and amount of coverage converted. Limitations vary by contract. Coverage (Life Insurance): The amount of money that would be paid by the life insurance company to your beneficiaries in the event of your death. Also called the "face value" of a policy, "death benefit," or "insurance benefit." Death benefit (from a life insurance policy): The amount of money that would be paid by the life insurance company to your beneficiaries in the event of your death. Also called the "coverage" amount, "face value" of a policy, or "insurance benefit." Delivery: The placing of an issued life insurance contract into the hands of the insured. Disability Income Insurance: A type of insurance that pays benefits to the insured in the event of their temporary or permanent disability (in accordance with the terms of the policy). For example, if an accident prevented an insured from working (and the insured met the terms of the policy), disability insurance would make up for some or all of their lost income, typically until retirement age if needed. Earnings (Within a Life Insurance Policy): In the context of permanent life insurance, the investment income and capital gains on a policy's cash values. In other contexts, earnings may mean only investment income or may mean an individual's income from work. Employer-Sponsored Retirement Plan: A retirement plan provided by an employer for the benefit of its employees. Examples include 401(k)s, 403(b)s, 457s, SEPs (simplified employee pensions), and SIMPLEs (savings incentive match plan for employees). Estate: An individual's total assets including property, money and investments, personal effects, other valuables and tangible goods. Estate Conservation / Planning: Process that involves preparations for handling financial, tax, legal and other affairs after the death of an individual or family members. Estate Tax: Taxes levied in the US by the Federal Government and some state and local jurisdictions based on the value of a deceased person's estate (which includes all their assets: property, investments, personal effects and other goods). Evidence of Insurability: Medical and other information needed for the underwriting of an insurance policy. Examination: Medical examination required for the underwriting of an insurance policy. Examiner: Typically a para-med examiner that comes to your home or office, but can be physician or nurse. In all cases, they are appointed by the insurance company underwriting your application for insurance. Face (Policy Face): The first page of a life insurance contract. Face Amount of Coverage: The death benefit of a life insurance policy – usually found on the face of the policy. Financial Professional: An individual with special training, typically licensed by one or more regulatory entities, who works to provide financial products and services. There are different types of financial professionals, including those licensed to sell insurance, or to sell investments, or to sell both. Fixed Amount / Fixed Benefit: A dollar amount of benefit which does not change. Free Look Period: A period of time in which an insured may examine a newly issued policy and return it for a full refund of premium if unsatisfied for any reason. The amount of time varies by state. Gain (Also Capital Gain): The increase in the value of an investment above the value paid for the investment. A decrease in the value of an investment is called a capital loss. Heir: An individual who receives or will receive some value or benefit from a parent or predecessor. For example, a child could be the heir of his or her mother or father. Income replacement: A reason for life insurance. For people with dependents that rely on their income, a life insurance benefit could provide a source of money to help replace their income in the event of their death. Income Tax: Taxes on employment income, investment income, and other income. Collected in the U.S. by the federal government through the Internal Revenue Service (IRS), state governments, and local jurisdictions. Insurability: The level of risk an insurer will accept while issuing a life insurance contract Individual Retirement Accounts (IRAs): Arrangements allowed under U.S. tax laws that can help individuals save for their retirement. You can open an IRA with a bank, insurer, broker or similar financial institution. The account must be designated as an IRA and follow IRA rules. Inflation: The increase in prices for goods and services over time, typically expressed as an annual percentage. Insurable Interest: An interest in which one party would suffer a financial loss from the death of another party. Insurance Policy: Contract between insurer and insured. Insured: The individual listed in the life insurance policy upon who's death, benefits would be payable to the beneficiary if all conditions of the contract are met. Insurer: The insurance company issuing the contract to the insured. Interest: Money or value paid for, or received from, a financial product. Borrowers pay interest on borrowed money such as loans and mortgages. Investors receive interest on some investments such as savings accounts and bonds. Investment Income: Includes interest (for example on cash or bonds), dividends (for example on stocks), and other income (for example rental income on investment property). IRC Section 101(a): Section of the Internal Revenue Code that provides that death benefits received from a life insurance contract are generally not included in an individual's gross income for tax purposes. Irrevocable Beneficiary: A beneficiary that can not be changed. Irrevocable Life Insurance Trust: A legal entity used for estate conservation purposes. An individual can establish an irrevocable trust (meaning the assets placed in trust can never be reclaimed by the individual) to own and be the beneficiary of a life insurance policy on the individual. Upon the individual's death, the trust receives the insurance benefit. The benefit amount will not be included in the individual's estate and can be distributed to the trust's beneficiaries. Lapse (of a Life Insurance Policy): The expiration of a life insurance policy due to non-payment of premiums. Level Term Life Insurance: A term life insurance policy which covers the insured for a set period of time such as five, ten, twenty, or thirty years for a fixed yearly premium cost. The longer the term period, the higher the premium. Most contracts convert to an annually increasing premium term until age ninety five upon expiration of the term period. Most contracts are convertible to another form of insurance without evidence of insurability. Life Expectancy: The average number of years remaining for a person of a given age to live according to mortality tables. This one of the main factors involved in determining life insurance premiums. Life Insurance: A type of insurance that pays money to an insured's family or other beneficiaries in the event of the insured's death. Life insurance comes in many varieties suited to different protection and investment needs. Long-Term Care Insurance: A type of health insurance policy that pays for an insured's long-term care. Long term care insurance is important because of the time and benefit limits of traditional health plans, Medicare, and Medicare supplement insurance. Long term care insurance can provide ongoing benefits after the benefits of Medicare and other plans are exhausted. Medicare: US Government health insurance program for Americans over age 65 and others receiving Social Security benefits, such as the long-term disabled. Mortality Table: A table showing the incidence of death at specified ages. Mortgage: A type of borrowing, typically secured by real estate, such as a home. Many people use a mortgage to buy their home. Mortgages are available from banks and similar institutions. Mortgage Insurance: Life insurance that is designed to pay off the mortgage in case the insured dies. Mutual Fund: A type of investment that holds and manages investments for the benefit of the fund owners. Most anyone can buy shares in mutual funds through financial institutions. Mutual funds exist for stocks, bonds, cash, property, other types of investments, and mixes of such investments. Investment income and gains are passed to fund owners in proportion to their investment in the fund. Mutual funds may gain or lose in value. Distributions from funds are generally subject to tax. Occupational Hazard: An occupation that increases the risk of death that usually results in increased premiums or waivers of benefit. Some insurance carriers look at certain occupations more favorably then others. Permanent Life Insurance: Also called ordinary life, a type of insurance that remains in force for the full life of the policyholder (assuming premiums are paid when due and there are no substantial loans or withdrawals). Upon the policyholder's death, the insurance benefit is paid to the policyholder's beneficiaries. (This is in contrast to term life insurance, which expires after a set term, for example 20 years.) *Withdrawals are also referred to as partial surrenders. **Interest will be charged on life insurance policy loans and loans may reduce the death benefit of a life insurance policy. Policy (Insurance): A written contract between an insurance company and an individual, company or other entity. Insurance policies describe the rights and obligations of the policyholder (for example, to pay premiums) and the insurer (for example, to pay a certain amount if the policyholder dies). Policyholder: An individual, company or other entity that has purchased a policy from an insurance company. The policyholder has certain rights under the policy (for example, to be paid an amount if a specified event occurs) and certain obligations (for example, to pay premiums). Policy Loan: Money borrowed by an individual from the value of a permanent life insurance policy. Policy loans can be a useful source of money for policyholders. However, a loan reduces a policy's cash value, may have tax consequences, and may reduce a policy's death benefit if not repaid. Policy Withdrawal: Money taken out of a permanent life policy by the policyholder. There may be penalty charges, taxes, and reductions in benefits associated with withdrawals. *Policy withdrawals are also referred to as partial surrenders. Primary Beneficiary: The persons or entities designated first in line to receive the death benefit or a share if the death benefit when the insured dies and benefits become payable. Preauthorized Check Plan: You can choose to pay your premium monthly rather than annually. The insurance company will establish an automatic draft linked to your checking account, and deduct the monthly premium on the date that you specify. Small service charges, approximately 3-3.5 percent of your annual premium, will be added to your payment and vary by company. Annual, semi-annual and quarterly payment modes are also available. Annual payments have the lowest 12-month charge of these alternatives. Preferred Risk: Any risk considered to be better than the standard risk on which the insurance company may issue a policy with lower rates then a standard risk. Many companies offer different degrees of preferred premium rates with the most healthy of people with the best family histories receiving the lowest premiums. Pre-Tax: Describes income or assets that have not yet been subject to federal income tax, or that relate to a past tax deduction. For example, most contributions to employer retirement plans are pre-tax. That is, employees contribute from their income before it is income taxed. Also, contributions to an IRA that result in a tax deduction for the individual are considered pre-tax. State and local income tax and other taxes may apply. Protection (Life Insurance): Refers to ability of life insurance to help a policyholder's dependents avoid financial hardship in the event of his or her premature death. In this context, a life insurance benefit payment can help protect beneficiaries from having to move out of their home, work for extra income, or compromise on education expenses. Rated: Any policy that is issued at a higher rate than standard because of some health condition or other factor of increased risk. Renewable Term Life Insurance: Term life insurance that may be renewed for another term without evidence of insurability. Level term life insurance usually turns into renewable term life insurance to age ninety-five with increasing premiums after the level premium period. Most level term life insurance policies expire at the end of the term or are converted to permanent insurance sometime during the term of the contract. Replacement: Any time a new policy written to take the place of one currently in force. If you wish to replace a life insurance policy with another one - no matter what the reason, you should not cancel your old coverage until you have received, reviewed and accepted your new policy. Cancel your old policy only after all final requirements for the new one are complete and you have received notification from the insurance company that your policy is inforce. The surrender of cash value policies may involve surrender penalties and tax consequences. New policies have contestability and suicide period provisions. Please make sure to consult your legal or tax advisor. Retirement: Retirement takes on many forms and isn't necessarily permanent. Retirement is best understood as a significant change in an individual's work life, income and financial needs. Return on Investment(s) (ROI): The total income from, and change in value of, an investment, typically expressed as an annual percentage of the investment's value. Return on investment can include interest payments, dividends, rental income and other income; and increase or decrease in value. 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. Rider: An attachment to a policy that modifies its conditions by expanding or restricting benefits or excluding certain conditions from coverage. Social Security: US Government program that provides regular payments to older individuals, and to people with disabilities. You are eligible to receive Social Security on turning age 62, or if you are the surviving spouse or dependent of a Social Security recipient. Spouse: Legally recognized husband or wife. Standard Risk: An average risk, not subject to additional charge / rate or restrictions because of health. Stock: A type of investment. Typically refers to a security representing a share of ownership in a company or other enterprise. Public company stocks are bought and sold by individuals, financial institutions and other entities through stock markets such as the New York Stock Exchange. Stocks may gain or lose in value. Survivor Needs: A reason for life insurance. For people with dependents, a life insurance benefit could provide a source of money to help meet the needs of their surviving dependents such as a spouse or children. Typical survivor needs include home mortgages and other debts, and current and future education expenses. Tax-Deferred, Tax Deferral: Describes products or strategies that result in the delay of federal income taxes being payable. Tax deferral allows for compound growth of investments without reduction in value from paying tax. State and local income tax and other taxes may apply. Tax-Free: Describes income or assets that are not and will not be subject to federal income tax. For example, withdrawals from Roth IRAs are tax-free. State and local income tax and other taxes may apply. Term: A period of time that a policy remains in force. For example, if an individual purchases a life insurance policy with a term of 20 years, he or she will be covered for the following 20 years. If the policyholder dies during that time period, a death benefit will be paid to the insured's beneficiaries. At the end of the term, the policy expires. Term Conversion: The process by which a term life insurance policyholder can change their policy (which will expire at the end of a specified term) into a permanent policy (which will not expire if kept in good standing). Many term life policies allow for conversion. A review of your policy or a consultation with a financial professional can help determine if your term policy is eligible for conversion. Term Life Insurance: A type of life insurance that covers a policyholder for a specified time period, for example 20 years. If the policyholder dies during the specified time period, a death benefit is paid to the insured's beneficiaries. At the end of the term, the policy expires. Trust: A legal entity established to hold assets for the benefit of one or more individuals, organizations or other entities. Trusts can be taxed separately from the individuals that control them so long as such individuals are not the beneficiaries of the trust. Underwriter (Insurance): The underwriter is professionally trained the evaluation of risks and determining whether and application for insurance can be issued and at whether it will be at preferred, standard, or rated premiums. They also will gather all the necessary information needed to accurately assess each application. Universal Life Insurance: A type of permanent life insurance characterized by adjustable premiums and coverage amount, and specific disclosure to the policyholder of insurance company expenses and charges. Universal life is popular with people interested in flexible life insurance protection that can grow as their income and needs grow. Variable Life Insurance: A type of permanent life insurance that allows policyholders some choice in how their policy's cash value is invested. Policyholders can choose among various subaccounts which can include different asset types such as equities, bonds, or mixes of assets. The policy's cash value varies according to the investment performance of the subaccounts chosen by the policyholder. Subaccounts can lose or gain in value. A loss may require the policyholder to pay more premium to keep the policy in good standing. Whole Life Insurance: Permanent life insurance (also called ordinary life insurance), typically with fixed premiums and a fixed death benefit. Workers' Compensation: Insurance mandated by states and purchased by employers that provides benefits to employees for job-related injuries or illnesses. Benefits include help with medical costs, disability income replacement, rehabilitation, and/or compensation in the event of a worker's death. *Guarantees apply to certain insurance and annuity products and are subject to the insurer's claims-paying ability and financial strength. Aspire Financial Group, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this web site is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisers regarding your particular set of facts and circumstances. |
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Steven J. Podgorski, LUTCF d.b.a. Aspire Financial Group, 1720 Crofton Drive, Algonquin, IL 60102
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