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1035 Exchange

In the United States, a "1035 Exchange" refers to a tax-free replacement of an insurance policy for another insurance contract that covers the same person.

72t Rule

72t is a rule from the IRS that allows for penalty-free, early withdrawals from a retirement savings account. According to the IRS, withdrawals are based on the account owner’s life expectancy.

A

Accelerated Benefits Rider

An accelerated benefits rider is sometimes called a living benefits rider. It allows for all or part of the death benefit to be paid to the insured while he/she is still living but suffering from a terminal illness or permanently confined to a nursing home.

Accidental Death Benefit

Accidental death benefit is an additional benefit that can be added to a life insurance policy and payable if the insured dies as the result of an accident.

Adjustable Death Benefit

An adjustable death benefit is a feature of Universal Life insurance that allows the policyholder to raise or lower the policy's death benefit without buying a new policy.

Accumulation Period

An accumulation period is the time between the first premium payment and when the payout begins. During this time, the premiums paid into the contract "accumulate" with interest.

Annuitant

An annuitant is usually the person entitled to receive the income from an annuity. The annuitant’s lifetime is used to measure the life of an annuity. The owner of the annuity controls the payments and is often the same person as the annuitant.

Annuity

A contract with an insurance company. In exchange for paying a premium, usually a lump sum, the insurance company credits interest to your premium. They then pay you an income on a regular basis, either immediately or in the future. It’s generally used as supplemental income during retirement.

Annuity Premium

Annuity premium is the payment one makes into an annuity contract.

Attained Age

The age the insured has reached since original policy issue is the attained age.

B

Base Rate

This is the anticipated rate that’s credited in the second year of an annuity contract. The base rate is not a guaranteed rate, and it may differ from the actual interest that is credited at the time the contract reaches its second year.

Basis Points

A basis point is a unit of measurement used when discussing interest rates; one hundred basis points equals one percent.

Benefit

A benefit is the sum of money provided to the insured or a beneficiary chosen by the insured.

Beneficiary

The person, persons or organization designated to receive the death benefit of a life insurance policy or annuity. A primary beneficiary is your first choice to receive proceeds from the policy. Contingent beneficiaries receive proceeds in case the primary beneficiary(ies) dies.

C

Cash Value

The sum of money in a universal life insurance policy or annuity that is, with some limitations, available to the policyholder in the form of withdrawals, loans, collateral or upon surrendering the policy. Also known as the Cash Surrender Value or CSV.

Cap

For an indexed annuity contract, the cap is an upper limit on the amount of an index’s gain in value that will be credited to the annuity value.

A Certificate of Deposit that earns interest for a specified period of time. Issued by a financial depository institution such as a bank.

Claim

A claim is the right of an individual or corporation to recover a loss under the terms of an insurance policy.

Clause

A clause is defined as the words in a policy that describe some certain coverage, limitation or revision.

Compounding Interest

Compounding interest is the type of interest that is earned on both the original principal amount and on the interest accumulated from earlier periods.

Convertible Feature

Convertible feature is a clause that allows a term insurance policy to be converted to permanent insurance without evidence of insurability.

D

Deferred Annuity

A deferred annuity is an annuity contract where periodic payments do not begin until some future date elected by the annuity owner.

Death Benefit

The sum of money paid to the beneficiary of a life insurance policy or annuity.

Direct Rollover

A rollover is a direct transfer of retirement funds from one qualified plan to another plan. Because funds do not pass through the hands of the owner they do not incur any tax liability for the owner. Also known as a direct transfer.

Double Indemnity

Double indemnity is a special life insurance policy that can be added where the face amount of the policy may be doubled by electing the accidental death coverage and by paying the additional premium.

E

Exclusion Ratio

The percentage of each annuity payment that is excluded from taxes. IRS guidelines for life expectancies are used by the insurance company to calculate this ratio.

Endorsement

There are many circumstances that require that a policy be changed; e.g., change of name, change in coverage. An endorsement is a form that is attached to the policy to record the change.

Exclusion

An exclusion refers to something not covered in an insurance policy.

F

Face Amount of Policy/Face Value/Specified Amount

The face amount of policy, face value, or specified amount is the amount for which a life insurance policy is issued. More specifically, it refers to the amount stated in a policy as the limit of the insurance company's liability, or the sum to be paid in case of the insured's death.

Fixed Annuity

Under the terms of a fixed annuity, the insurance company agrees to credit a guaranteed minimum interest rate to the annuity. The principal, your original premium, is never at risk such as it would be with a variable annuity.

Fixed Indexed Annuity

A fixed indexed annuity offers the same type of minimum interest rate guaranteed by a traditional fixed annuity, but may credit additional interest depending upon the performance of an external standard, typically a major stock market index.

Fixed Period Option

Fixed period option is a feature of an annuity contract that initiates payment of the principal and interest over a determined period of time until that period expires.

Flexible Premium

A flexible premium is a key feature of Universal Life and deferred annuities. It allows the policyholder to vary premium payments, or even skip payment intervals and amounts.

G

Grace Period

In life insurance, a grace period refers to the additional time (usually 31 days) allowed for payment after the premium is due without ending the policy and terminating the insurance contract.

Guaranteed Insurability

Guaranteed insurability refers to a rider to an insurance policy contract that guarantees the insured's right to purchase additional coverage, at specified times in the future, without additional evidence of insurability.

I

Immediate Annuity

An annuity that begins to provide you with an income right after paying a single premium or lump sum.

Indemnify

To indemnify is to pay out for actual loss experienced. Many insurance policies and all bonds promise to "indemnify" the insured. Under contracts like these, there can be no recovery until the insured has actually suffered a loss.

Indexed

An interest crediting strategy where the credited interest rate is calculated based partly on the upward movement of a major stock market index. Can be used with universal life insurance and annuities.

Interest-Out-First Rule

The interest-out-first rule works like this: If a withdrawal is taken from an annuity contract, the withdrawal must be treated as interest (and taxed accordingly) if the cash value of the contract exceeds the amount paid into the contract at that time.

J

Joint-Life Annuity

A policy that covers two or more lives and makes annuity payments to two or more annuitants is called a joint-life annuity. Sometimes payments cease at the first death and sometimes at the last death.

Joint-Life Insurance

A policy that covers two or more lives and may pay benefits on either the first or last death is called a joint-life insurance policy.

L

Lapse

The termination of a policy because of the insured's failure to maintain sufficient payments in the policy is often referred to as a lapse in the policy.

Level Premium

An insurance policy with a level premium requires that premiums remain fixed and level for the specified term or the entire contract.

Level Term

A level term in an insurance policy has a level death benefit and lasts for a specified period of time.

Life Insurance

Life insurance is a type of insurance that provides for payment by the insurance company to a designated beneficiary upon the death of the insured.

Life Insurance Premium

A life insurance premium is the amount paid for life insurance coverage.

Limited-Pay Life

"Limited-pay life" refers to a permanent life insurance policy where premiums are due during a specified period of time.

Life Only

"Life only" refers to an annuity settlement option or immediate annuity in which regularly scheduled payments are made from the time distribution is initiated. These payments then continue through the end of the annuitant's life.

Life with Period Certain

"Life with period certain" refers to an annuity settlement option or immediate annuity in which lifetime annuity payments are made. However, there is a guaranteed minimum number of payments that will be made to the beneficiary if the annuitant dies within a specified period of time.

Lump Sum Payment

The entire payment of an annuity policy to the annuitant at one time, rather than in installment payments, is a lump sum payment.

M

Maturity

Maturity is when the insurance contract reaches the stage when the obligation is due and payable. In life insurance, an ordinary (or whole) life policy reaches maturity on the death of the insured or at an age specified within the insurance contract.

Modified Endowment Contract

A life insurance policy becomes a Modified Endowment Contract (MEC) when excessive contributions in the first years of the policy make the policy paid up too quickly. In this case accessing the cash value is subject to IRS taxes and penalties. However, the death benefit retains its status as a tax-free transfer to heirs.

MVA

An MVA is a product feature that uses a fixed interest rate guarantee, combined with an interest rate adjustment factor, to cause the insurance payments to fluctuate in response to market conditions.

N

Non-Cancelable

A non-cancelable life insurance policy or annuity may not be cancelled by the issuing insurance company unless agreed upon premiums are not paid by the buyer of the insurance policy.

Non-Qualified

Funds are designated as non-qualified if they have already been taxed (post-tax dollars), except Roth IRA funds.

O

Old Money Rate/Renewal Rate

The interest rate that applies to the portion of the insured’s account balance that is no longer in the new money period as defined in the insurance contract is the old money rate or renewal rate.

Ordinary Life

Ordinary life, also called whole life, is a type of life insurance policy that continues throughout the policyholder's lifetime. It is payable upon death or when one reaches a specified maturity age.

P

Paid-Up Policy

A paid-up policy is a life insurance contract on which all premiums have been fully paid

Participation Rate

For an indexed annuity of indexed life contract, the participation rate is the amount of an indexes gain that will be credited to the policy value.

Permanent Life Insurance

A type of insurance designed to cover a person for their entire life unlike term life insurance which covers a person for a specified period. Universal life is the most common type of permanent life insurance.

Policy

A policy, or insurance policy, is a written statement or contract between an insurance company and a consumer expressing the promises of an insurance relationship.

Policy Loan

A loan taken by the policyholder from the insurer, secured by the insurance policy's cash value is a policy loan.

Premium

The amount paid to the insurance company to purchase the life insurance policy or the annuity. Paid as a lump sum or as installments.

Premium Bonus

A premium bonus is an additional amount added to the original principal, usually limited to the first and/or second year’s premium.

Premium Waiver

A premium waiver is a rider available at a cost on life insurance contracts. With this, the insurance company agrees to waive the payment of premiums due after the insured becomes totally and permanently disabled.

Principal

The total of amount you have contributed in the form of premiums to a universal life insurance policy or annuity.

Q

Qualified

Annuity funds are designated as qualified if the have not yet been taxed (pre-tax dollars), except Roth IRA funds.

R

Re-Entry

In Term Insurance, renewing coverage at the end of the initial term with evidence of insurability is called re-entry, or re-entry exam.

Reinstatement

Reinstatement is the act of restoring an expired insurance policy back to full coverage.

Renewable Feature

A feature of Term Insurance that guarantees a term can be renewed without the insured having to prove insurability is called a renewable feature.

Required Minimum Distribution (RMD)

A required minimum distribution (RMD) is the minimum amount of money an annuitant must receive per year from an Individual Retirement Account funded with an annuity contract beginning by April 1st of the year following the year they attain age 70-1/2. The IRS requires this minimum distribution of funds, which is calculated based on the annuitant's age and the value of the contract.

Rider

Rider is another name for an addition to a base policy contract that legally adds further benefits or agreements to an insurance policy.

S

Settlement Options

A settlement option is a provision in an annuity policy that, when exercised, provides for optional methods of settlement in place of a lump-sum cash payment.

Single Premium Annuity

An annuity purchased with one lump sum payment is referred to as a single premium annuity. The payout can be either immediate or deferred.

Single Premium Whole Life

A Whole Life Insurance policy that is fully funded with one lump sum payment is referred to as a single premium whole life. These policies are usually classified as Modified Endowment Contracts.

Single Premium Immediate Annuity (SPIA)

An annuity contract that is purchased with a single premium payment and that will begin making payments within one year after the contract’s issue date.

Stock Market Index

The market price of a particular group of stocks such as the S&P 500.*

Surrender Charge

A surrender charge can mean either (1) An amount charged to an annuity contract owner when they prematurely withdraw a portion or the entire contract’s accumulated value. Also known as back load, contingent deferred sales load, and withdrawal charge, or (2) Expense charges imposed on some types of life insurance policies when the policy owner surrenders the policy.

Surrender Value

The surrender value is the amount in cash a contract owner is entitled to collect upon terminating the life insurance policy or annuity contract prior to maturity or death.

T

Tax Deferred

Interest credited to a life insurance policy or to an annuity that is not tax as earned income until it is withdrawn.

Tax Sheltered Annuity (TSA)

A tax sheltered annuity (TSA) is an annuity issued by a life insurance company under Section 403 (b) of the Internal Revenue Code designed to help the annuitant accumulate funds for retirement. Eligibility is limited to specific occupations such as teachers and people who work for non-profit organizations.

Term

The length of time for which an insurance policy runs is the policy’s term.

Term Policy

A term policy is a type of non-permanent life insurance that may require fixed or increasing premiums and have fixed or decreasing death benefits.

U

Universal Life

A type of permanent life insurance that’s designed to cover you for your entire life. It most often has a flexible premium, options for paying out and an adjustable death benefit. Also known as whole life insurance or ordinary life.

Underwritten Single Premium Immediate Annuity (SPIA)

An underwritten Single Premium Immediate Annuity (SPIA) is identical to a traditional SPIA but payments are adjusted to reflect the medical history of the individual customer.

V

Variable Annuity

A variable annuity is a contract where the cash value of the policy fluctuates in response to the performance of the policy’s underlying investments. There is generally a minimum guaranteed death benefit under variable annuities.

Variable life Insurance

Variable life insurance refers to a life insurance contract where the cash value of the insurance policy and the policy’s death benefit fluctuate in response to the performance of the policy’s investments. There is generally a minimum fixed premium and minimum guaranteed death benefit under variable life insurance policies.

W

Waiver of Premium

A waiver of premium is a rider or policy condition that states the premium will be forgiven or waived if the insured becomes totally and permanently disabled.

Whole Life Insurance

* "Standard & Poor’s ©", "S&P©7", "S&P 500©", "Standard & Poor’s 500©" and "500©" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Aviva. Our Indexed UL products are not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s makes no representation regarding the advisability of these products.

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