Understanding the Terms

Often, terms and phrases are used in the insurance and financial industries that are not common in every day conversation. To assist you in better understanding these terms, the following is a list of definitions of commonly used words. Please speak to your Crain & Schooley Financial Advisor if you have further questions.

Accidental Death and Dismemberment
Coverage that provides a lump sum payment to you or your survivors if an accident results in the loss of a limb, paralysis or your death.

Account Value
The sum of all interest options in your policy, including interest.

Accumulated Value
An amount of money invested plus the interest earned on that money.

Actuary
Someone who uses statistical data to evaluate the probability of future events and prices insurance products.

Annual Premium
Yearly amount payable by a client for a policy or component.

Annuity
Periodic payments made to an individual under the terms of the policy.

Annuity Period
The time between each payment under an annuity.

Applicant
The person applying for an insurance policy.

Asset
All things or value owned by an individual or organization.

Automatic Benefits Payment
Automatic payment of moneys derived from a benefit.

Automatic Waiver of Premium
A benefit that automatically forfeits premium payments.

Beneficiary
The person designated to receive proceeds entitled by a benefit. Payment of a benefit is triggered by an event.

Benefit
An instruction that pays a cash amount upon the occurrence of a specific event.

Benefit Value
The amount of cash payable on a benefit.

Bond
Fixed interest security issued by a corporation or government, having a specific maturity date.

Canada Pension Plan
A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).

Cash Surrender Value
Benefit that entitles a policy owner to an amount of money upon cancellation of a policy.

Child Insurance Rider
Insurance or insurability provided on current or future children of insured.

Claim
Request for payment of benefits under the terms of an insurance policy.

Claimant
Person or party making a request for payment of benefits under the terms of an insurance policy.

COLA
Cost of living adjustment.

Contingencies
Events that are possible, but may or may not happen. Premium rates and acceptance of certain risk are based on contingencies.

Conversion
The act of changing from one type of life insurance policy to another without having to give evidence of insurability.

Critical Illness Insurance
Coverage that provides a lump sum payment should you become seriously ill with a specified illness. There are no restrictions on how you use your benefit.

Daily Interest Accumulation
Account in which interest is accrued daily and credited to the account at the end of a specified time.

Death Benefit
Amount paid on death of an insured.

Deductible
A flat amount that an insured must pay before the insurance company makes any benefit payments under a health insurance policy.

Disability
Inability to work due to injury or illness.

Dividend
Unlike dividends which are paid to company shareholders, participating insurance policy dividends are not based on the company's overall profits. Rather, they are determined by grouping policies by type and country of issue and looking at how each class contributes to the company's earnings and surplus.

Duration
The time it takes for a policy or annuity to reach maturity.

Equity-based insurance
Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.

Equity investment
Through equity investment, investors gain part ownership of the corporation. The primary type of equity investment is corporate stock.

Estate Planning
An insurance program designed to provide funds for insured's dependents upon death of the insured, and to also conserve, as much as possible, the personal assets that the insured wants to bequeath to heirs.

Evidence of Insurability
Evidence submitted to the insurer that is used to determine whether an individual is eligible for the insurance coverage the individual has applied for.

Exclusion
A specific condition or circumstance listed in the policy that are not covered by the policy

Guaranteed Interest Annuity (GIA)
Interest bearing investment with fixed rate and term.

Guaranteed Interest Certificate (GIC)
Interest bearing investment with fixed rate and term.

Guaranteed Renewal
A promise that a life insurance policy will be renewed without penalty or medical examination after the term has expired. The renewal rate can also be guaranteed.

Indemnity
A type of contract in which the amount of the benefit to be paid is based on the actual amount of financial loss determined at the time of the loss - for example, hospital expense insurance.

Indexation
The adjustment of benefits to compensate for the effects of inflation.

Individual Insurance
Insurance that is offered to individuals rather than groups.

Insurance Act
In Canada, a general statute that contains most of the insurance law of a common law province, and regulates the conduct of insurers and insurance agents within the province.

Insurance Policy
A policy under which the insurance company promises to pay a benefit of the person who is insured.

Insured
Person whose life is protected under a specific policy.

Insurer
The party in an insurance contract that promises to pay a benefit if a specified loss occurs. Usually an insurance company.

Interest Option
One of several investment accounts in which your premiums may be invested within your life insurance policy.

Interest Rate
Rate charged or paid for the use of money, normally expressed as a percentage

Irrevocable Beneficiary
Legal designation that cannot be contested. (See beneficiary)

Issue
When an item is approved and released for sale, or when a policy or sales contract is accepted.

Issue Age
Age of an insured as at the policy issue date, using "age nearest" next birthday formula.

Issue Date
Date on which a policy is approved.

Job Loss Insurance
Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.

Joint Policy Life
One insurance policy that covers two lives, and generally provides for payment at the time of the first insured's death. It could also be structured to pay on second death basis for estate planning purposes.

Lapse
Termination when a policy has no cash value after all attempts at conservation have failed.

Level Premium
A premium that remains unchanged throughout the life of a policy

Life Insurance
Insurance that provides protection against an economic loss caused by death of the person insured.

Life Insured
The person who's life is protected by an individual policy.

Life Underwriter
Insurance Agent.

Lives
Number of insureds.

Maturity
The time when a policy or annuity reaches the end of its span.

Mortality Rate
The death rates for various age groups of the population.

Mortgage Life insurance
Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.

Mortgage
An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for purposes of purchasing a loan secured by a home.

Multiple Lives
Two or more death benefits based on one definition with different insureds.

Non-participating Policy
A type of insurance policy or annuity in which the owner does not receive dividends.

Operating Expenses
The amount of money the company must spend on overhead, distribution, taxes, underwriting the risk and servicing the policy. It is a factor in calculating premium rates.

Paid-Up Additions
A type of insurance policy or annuity in which the owner receives dividends, typically increases the death.

Participating Policy
A policy offers the potential of sharing in the success of an insurance company through the receipt of dividends.

Pension Fund
Assets used to pay the pensions of retirees. An investment institution established to manage the assets used to pay the pensions of retirees.

Personal Line of credit
A bank's commitment to make loans to a borrower up to a specified maximum during a specific period, usually one year.

Policy
A written document that serves as evidence of insurance coverage and contains pertinent information about the benefits, coverage and owner, as well as its associated directives and obligations.

Policy Anniversary
Yearly event linked to a policy. Usually the date issued.

Policy Date
Date on which the insurance company assumes responsibilities for the obligations outlined in a policy.

Policy Fee
Administrative charge included in a Policy Premium.

Policy Year
Period between two policy anniversaries.

Policyowner
The person who owns and holds all rights under the policy, including the power to name and change beneficiaries, make a policy loan, assign the policy to a financial institution as collateral for a loan, withdraw funds or surrender the policy.

Pre-Authorized Cheque (PAC)
Withdrawals generated by a company (with client's permission) against a client's bank account on a predetermined schedule for a predetermined amount.

Pre-existing medical condition (Credit Insurance)
A medical condition that existed before you became insured. Most policies exclude benefits if the condition is related to the event that triggers a claim if occurs within a certain period (6-12 months) after you became insured.

Preferred Beneficiary
Used in older contracts to confer the same rights as an irrevocable beneficiary. Applied to family members.

Premium
Annual amount payable, by a client, for selected product or service.

Premium Mode
Payment schedule of policy premiums, usually selected by the policy owner (monthly, quarterly, annually).

Premium Offset
After premiums have been paid for a number of years, further annual premiums may be paid by the current dividends and the surrender of some of the paid-up additions which have built up in the policy. In effect, the policy can begin to pay for itself. Whether a policy becomes eligible for premium offset, the date on which it becomes eligible and whether it remains eligible once premium offset begins, will all depend on how the dividend scale changes over the years. Since dividends are not guaranteed, premium offset cannot be guaranteed either.

Quebec Pension Plan
A plan that primarily provides retirement and long-term disability income benefits for residents of Quebec.

Refinancing
Extending the maturity date or increasing the amount of existing debt or both. Also, revising a payment schedule, usually to reduce the monthly payments and often to modify interest charges.

Reinsurance
Process in which the risk of potential loss is shared between two or more insurers.

Reinsurer
An insurance company that accepts the risk transferred from another insurance company in a reinsurance transaction.

Rider
An attachment to an insurance policy that becomes part of the insurance contract and expands the benefits payable.

Risk
Calculated chance of loss.

Risk class
A group of insureds who present similar risk to the insurance company. Risk classes include - standard, preferred, nonsmoker, substandard, uninsurable.

RRSP
Registered Retirement Savings Plan - A plan enabling Canadian citizens to establish tax-sheltered accounts to accumulate money towards retirement.

Segregated Fund
A pool of assets held by the insurer, to back a specific liability to a policyholder. Segregated Funds fluctuate in value depending on the market value of a specific group of assets the company must maintain separately.

Surrender
Give up certain rights under a policy, or give up the policy itself.

Surrender Charge
Expense charges applied when the owner of a policy surrenders a policy for its cash value.

Term
The time period during which a policy is in force, or the time it takes for a policy to reach maturity.

Term Life
A product that provides life coverage for a specified duration typically not beyond the age of 75.

Terminal Illness Insurance
Coverage that provides a lump-sum payment should you become terminally ill. The payment is made to your creditors to pay off your debt owing.

Terminate
Cease all legal obligations under a contract.

Underwriter
Person that uses various types of evidence to evaluate the insurability of a client.

Underwriting
Evaluating and classifying potential risk of a client.

Unearned Premium
Premiums paid for coverage not yet provided.

Universal Life
An unbundled Life product with a separate investment component. It typically does not participate in companies profits.

Waiting Period
A specific time that must pass following the onset of a covered disability before any benefits will be paid under a creditor disability policy. (Also known as an elimination period).

Waiver
Removing liability or responsibility regarding a tangible event.

Waiver of Premium
A benefit that allows CLA to pay premiums on behalf of the insured.

Whole Life
Component that provides life coverage during the insured's life.