Life Insurance Glossary

Account Value

Account Value in an IUL policy refers to the total amount of money accumulated in the policy after premiums have been paid and interest has been credited, minus any withdrawals, loans, or charges.

Accumulate At Interest

Accumulate At Interest refers to the process by which the cash value or account value of the policy earns interest based on the performance of a chosen index, like the S&P 500. Unlike direct investments in the stock market, the interest credited to the IUL policy is typically subject to both a guaranteed minimum (floor) and a maximum limit (cap).

Adjustable Death Benefit

Adjustable Death Benefit in an IUL policy refers to the flexibility offered to policyholders to increase or decrease the amount of the death benefit, subject to certain limits and underwriting criteria. This allows the policyholder to adapt their coverage based on changing financial needs and circumstances throughout their life.

Adjustable Premiums

Adjustable Premiums in an IUL policy refer to the flexibility provided to the policyholder to modify the amount of their premium payments within certain limits defined by the policy.

Administrative Charge

Administrative Charge in an IUL policy refers to a fee deducted, typically on a monthly or annual basis, by the insurance company to cover the costs related to policy administration.

Administrative Expenses

Administrative Expenses in an IUL policy refer to the costs incurred by the insurance company in the management and maintenance of the policy.

Annual Contributions

Annual Contributions in an IUL policy refer to the total amount of money a policyholder pays into the policy as premiums over a one-year period. These contributions are used to provide life insurance coverage, accumulate cash value based on the performance of a chosen index, and cover various charges and fees associated with the policy.

Annual Point-to-Point Method

Annual Point-to-Point Method, within the context of an IUL policy, refers to a method of calculating the interest credited to the policy's cash value based on the change in an external index's value over a one-year period.

Annual Step-up

Annual Step-Up in the context of an IUL policy, refers to a feature where the policy's credited interest rate is locked in, and the account value is reset at the end of each policy year. This means any gains achieved from the linked index during the year are "stepped up" and become a guaranteed part of the policy's cash value.

Annualised

"Annualised" typically refers to the conversion of shorter-term performance or rates into an annual figure.

Annuitisation Bonus

An annuitisation bonus refers to an additional amount added to the funds of an annuity contract when the annuitant decides to convert their accumulated investment into a series of periodic payments.

Annuitise

To annuitise means to convert a lump sum of money, often accumulated in a retirement account or investment fund, into a stream of periodic payments that are guaranteed for life or a specified period.

Annuity Linked TVI Index

Annuity Linked TVI (Total Value Index) is a specialised financial benchmark often associated with certain annuity products, which are insurance contracts designed to pay out a regular income stream to the annuitant.

Automatic Premium Loan (APL)

An Automatic Premium Loan (APL) is a provision in a life insurance policy that prevents the policy from lapsing due to non-payment of premiums.

Average Rates of Return

Average Rate of Return is a financial metric used to measure the profit or loss of an investment over a specified period, expressed as a percentage of the initial investment cost. It is calculated by taking the sum of all yearly returns and dividing it by the number of years.

Bailout Provision

The Bailout Provision is a clause found within certain fixed-income investment contracts, particularly annuities, which allows investors to withdraw funds without incurring a penalty if the investment's interest rate falls below a specified level.

Barclays Capital Aggregate Bond Index

The Barclays Capital Aggregate Bond Index, now known as the Bloomberg Barclays U.S. Aggregate Bond Index after Bloomberg LP acquired Barclays' index business, is a broad-based benchmark that measures the performance of the U.S. dollar-denominated, investment-grade, fixed-rate, taxable bond market.

Base Policy

A Base Policy refers to the primary insurance contract that provides the essential coverage benefits to the policyholder. It outlines the core terms, conditions, coverage limits, and the framework for the insurance protection offered.

Basis

"Basis" in financial and investment terminology refers to the difference between the spot price of an asset and the future price of the same asset. It is a concept used mainly in futures trading to indicate the price discrepancy that can exist between a futures contract and the underlying asset's market price.

Beneficiary

A beneficiary is a person or entity that you choose to receive the payout from your life insurance policy in the event of your death. This is a vital part of your insurance policy because it identifies who will receive the financial benefit from your policy.

Benefit Base

The 'Benefit Base' is a valuable term in the world of insurance, especially when it comes to indexed universal life insurance. It is essentially an amount set by the insurance company. This amount is used as a foundation to calculate important policy benefits like the death benefit or cash value.

Benefit Base Bonus

Benefit Base Bonus' is a special perk you get with specific life insurance policies. Think of it like a cherry on top of your ice cream sundae. It gives your policy's cash value a little boost based on how well a selected financial index is doing.

Bonds and Mortgages

Bonds and Mortgages' are types of investments. A bond is a promise by a company or government to pay back a loan with interest.

Broker/Dealer

A broker/dealer refers to a person or firm in the financial services sector who is licensed to engage in the buying and selling of securities on behalf of themselves and their clients. The term "broker" denotes the aspect of the business that handles orders for clients, acting as an intermediary between the buyer and the seller.

Buying flexibility

Buying flexibility refers to the capacity of an individual or organisation to adapt their purchasing decisions and actions in response to changes in the market environment, availability of products, or financial considerations.

5-Year Constant Maturity Treasury Rate

5-Year Constant Maturity Treasury Rate refers to the yield or interest rate associated with U.S. Treasury securities that have a remaining maturity of five years. This rate can be used as a benchmark or index for some IUL policies, meaning the credited interest rate to the policy's cash value is linked to the performance of this rate.

Cap (Interest Rate)

The cap, in the context of interest rates, refers to a limit on the amount an interest rate can increase on a variable or adjustable-rate loan or mortgage. This ceiling is designed to protect borrowers by setting a maximum rate that can be charged, regardless of market fluctuations.

Cap Rate

Capitalisation rate, or cap rate, is a metric used in the real estate industry to estimate the potential return on an investment property. It is calculated by dividing the property's net operating income (NOI) by its current market value or purchase price.

Cap on Earnings

A cap on earnings or Capitalisation of Earnings refers to a policy or regulation that sets an upper limit on the amount of income an individual or entity can earn within a certain period. This concept is often discussed in various contexts, such as executive compensation, social welfare benefits, or professional sports salaries.

Capped Returns

Capped returns refer to a financial arrangement where the potential return on an investment is subject to a maximum limit. This means that no matter how well the underlying investment performs, the investor will not receive more than the predetermined maximum return.

Caps (In Investment Growth)

Caps in investment growth are constraints set on the appreciation potential of an investment, often seen in fixed-indexed annuities or certain types of structured products.

Cash Account Value

Cash account value is the total amount of cash available in an investment account, which includes the principal sum invested, any accrued interest, dividends, and capital gains, minus any fees or withdrawals.

Cash Accumulation

Cash accumulation is a financial strategy that involves the gradual building of cash reserves over time. This can be achieved through regular savings, prudent investments, and reinvesting earnings such as interest, dividends, or capital gains.

Cash Surrender Value

The cash surrender value is the amount an insurance policyholder is entitled to receive if they choose to terminate their permanent life insurance policy before it matures or the insured event occurs.

Cash Value

Cash value refers to a component of certain life insurance policies that functions as a savings account within the policy.

Cash Value Account

A cash value account is a feature specific to permanent life insurance policies that accrue value over the duration of the policy. Part of the premium payments made by the policyholder is allocated to this account, where it is invested and grows on a tax-deferred basis.

Cash Value Allocation

Cash value allocation is a term used in the context of certain life insurance policies, where the policyholder can designate how the cash value portion of their premium payments is invested by the insurance company. This feature is common in variable life insurance policies, which combine a death benefit with an investment component.

Cash Value Component

The cash value component is an integral feature of permanent life insurance policies, such as whole life, universal life, and variable life insurance. It represents a portion of the premiums that accumulate within the policy over time, separate from the death benefit.

Combo Products

Combo products, or Combination Products, in the financial and insurance industries, refer to hybrid offerings that bundle together different types of insurance coverage or financial services into one package. These products are designed to provide a comprehensive solution that meets multiple needs of consumers with a single purchase.

Consumer Price Index (CPI)

Consumer Price Index (CPI) is a measure that examines the average change over time in the prices paid by consumers for a basket of goods and services.

Consumer Price Index URBAN (CPI-U)

The Consumer Price Index for Urban Consumers (CPI-U) is an economic indicator that measures the changes in the price of a basket of goods and services purchased by urban consumers.

Contract Owner

Contract Owner refers to an individual or entity that holds ownership rights to the policy. The Contract Owner is responsible for paying the premiums, has the authority to make changes to the policy, such as updating beneficiaries or adjusting premium amounts, and can exercise any options or privileges stipulated in the contract.

Cost of Insurance

Cost of Insurance (COI), within the context of an Indexed Universal Life Insurance policy, refers to the portion of the premium that is allocated to cover the mortality risk associated with insuring the policyholder's life.

Crediting Method

Crediting Method refers to the formula used by an Indexed Universal Life (IUL) insurance policy to determine the amount of interest to be credited to the cash value of the policy based on the performance of a chosen market index, such as the S&P 500.

Daily Average Method

The Daily Average Method is used to determine the indexed interest crediting rate. Instead of using the growth in an index from one point in time to another, the daily average method calculates the average value of the index over a specified period, typically a month or a year.

Death Benefit

A Death Benefit in an Indexed Universal Life Insurance (IUL) policy refers to the predetermined amount of money that is paid out to the designated beneficiaries upon the death of the insured.

Deferred Annuity

Deferred Annuity refers to an annuity contract that is designed to grow funds tax-deferred before being converted to a stream of income at a later date. T

Direct Recognition

Direct recognition refers to a practice by the insurance company wherein they acknowledge and adjust the policyholder's dividends or interest crediting rates based on the amount of outstanding loans against the policy's cash value.

Dividends

Dividends refer to a share of the insurance company's profits that may be distributed to policyholders.

Enhanced Death Benefit

An Enhanced Death Benefit is a feature within an Indexed Universal Life (IUL) insurance policy that offers an additional layer of protection to the policyholder's beneficiaries.

Equity Index

Equity Index refers to a stock market index that tracks the performance of a selected group of stocks, such as the S&P 500, Nasdaq, or Dow Jones Industrial Average.

Exclusion Ratio

Exclusion Ratio in an Indexed Universal Life insurance policy refers to the portion of the policy's payouts that can be excluded from taxable income. This ratio is determined by dividing the total amount of premiums paid by the expected return from the policy.

Extended No-Lapse Guarantee

An Extended No-Lapse Guarantee (ENLG) in the context of Indexed Universal Life (IUL) insurance refers to a feature that ensures the policy will remain in force, even if the cash value drops to zero or becomes negative, provided that the premium payments are made as specified by the guarantee.

Face Amount

Face Amount in an Indexed Universal Life insurance policy refers to the guaranteed minimum death benefit that will be paid to the beneficiaries upon the policyholder's demise. It is the initial coverage amount selected by the policyholder at the time of purchasing the IUL policy.

Face Amount Charge

Face Amount Charge refers to a fee deducted by the insurance company, typically on a monthly basis, to provide the death benefit coverage. This charge is based on the total death benefit, or "face amount," of the policy and can vary depending on factors such as the policyholder's age, health, and the total coverage amount.

Financial strength ratings

Financial Strength Ratings refer to the assessments provided by independent rating agencies evaluating the overall financial health, stability, and claims-paying ability of insurance companies offering Indexed Universal Life (IUL) policies.

Fixed Account Options

Fixed account options refer to the portion of the policyholder's cash value that can be allocated to an interest-bearing account with a guaranteed minimum interest rate. Unlike the indexed account, which has returns tied to a financial index such as the S&P 500, the fixed account offers stability and predictability by providing a set rate of return.

Fixed Account Rate

Fixed Account Rate refers to the guaranteed minimum interest rate that the insurance company will credit to the policy's cash value that is allocated to the fixed account.

Fixed Interest Rate

Fixed Interest Rate refers to the predetermined, stable rate of return that is applied to a portion of the policyholder's cash value account.

Fixed Loan Interest

Fixed Loan Interest refers to the predetermined, unchanging interest rate charged on policy loans borrowed against the cash value of the policy. When a policyholder takes a loan from their IUL policy, they can typically choose between a fixed or variable loan interest rate.

Fixed-Rate Interest Account

Fixed-Rate Interest Account refers to a portion of the policyholder's cash value that is credited with interest at a predetermined, guaranteed rate.

Fixed-Rate Universal Life Policy

Fixed-Rate Universal Life Policy refers to a particular feature within the policy that offers a guaranteed, fixed interest rate on a portion of the policyholder's cash value.

Flexible Premiums

Flexible premiums refer to the policyholder's ability to adjust the amount and frequency of their premium payments within certain limits. This flexibility allows the policyholder to contribute more or less funds based on their financial situation at any given time, without jeopardising the status of the policy.

Floor

The Floor in an Indexed Universal Life insurance policy refers to the minimum interest rate that is credited to the cash value of the policy, regardless of the performance of the index it is tied to. It provides a safety net for policyholders by ensuring that, even in a poor market scenario, the cash value will not decrease below a certain predetermined level due to market fluctuations.

Floor (in investment growth)

In the context of an Indexed Universal Life (IUL) insurance policy, the "floor" refers to the guaranteed minimum interest rate that the policyholder will earn on their cash value, regardless of the performance of the underlying index (e.g., S&P 500).

Forced Asset Allocation Model

The Forced Asset Allocation Model refers to a predefined strategy set by the insurance company dictating how the policyholder's premiums are to be allocated among different index accounts and fixed accounts within an Indexed Universal Life insurance policy.

Free Look Period

The "Free Look Period" is a consumer protection feature commonly found in insurance policies. It grants new policyholders a specific timeframe, usually ranging from 10 to 30 days, after purchasing a policy to thoroughly review its terms, conditions, and coverage.

Free Withdrawal Provision

The "Free Withdrawal Provision" is a feature often found in annuity contracts and some insurance policies. It allows policyholders or annuitants to withdraw a portion of their funds without incurring any penalties or surrender charges.

General Account

General Account refers to the collective investment portfolio held by insurance companies, where they pool the premiums received from policyholders.

Growth Rate Cap

"Growth Rate Cap" is a financial term often associated with certain investment products, particularly indexed annuities or structured notes. It represents the maximum rate of return an investor can earn on an investment, regardless of how well the underlying index or asset performs.

Guaranteed Death Benefit

Guaranteed Death Benefit is a provision commonly found in life insurance policies and certain annuity contracts. It ensures that a predetermined minimum amount will be paid to the beneficiaries upon the death of the policyholder or annuitant.

Guaranteed Lifetime Withdrawal Benefit (GLWB)

The "Guaranteed Lifetime Withdrawal Benefit" (GLWB) is a rider or feature often added to annuity contracts, designed to provide policyholders with a guaranteed stream of income for life.

Guaranteed Minimum Accumulation Benefit (GMAB)

The "Guaranteed Minimum Accumulation Benefit" (GMAB) is a protective feature often associated with variable annuities. It ensures that the policyholder's account value will be at least a specified amount after a predetermined number of years, regardless of market performance.

Guaranteed Minimum Death Benefit (GMDB)

The "Guaranteed Minimum Death Benefit" (GMDB) is a feature commonly found in variable annuity contracts, ensuring that beneficiaries receive a predetermined minimum amount upon the death of the annuitant.

Guaranteed Minimum Income Benefit (GMIB)

The "Guaranteed Minimum Income Benefit" (GMIB) is a rider or additional feature often attached to variable annuity contracts. It promises annuitants a minimum periodic income, regardless of the performance of the investments within the annuity or the account's actual balance.

Guaranteed Minimum Interest Rate

The "Guaranteed Minimum Interest Rate" is a provision often found in fixed annuities and some insurance policies. It ensures that the invested funds will earn a specified minimum rate of interest, regardless of broader market fluctuations or economic downturns.

Guaranteed Rate of Return

The "Guaranteed Rate of Return" is a commitment by financial institutions to provide investors with a predetermined rate of interest on their investments over a specified period. This means that regardless of market conditions, economic shifts, or other external factors, the investment will grow at the promised rate, ensuring a predictable and fixed return.

Guaranteed Withdrawal Payments

Guaranteed Withdrawal Payments refer to a feature often found in certain annuity contracts, ensuring that annuitants can receive a set amount of money at regular intervals, irrespective of the annuity's investment performance or the prevailing market conditions.

Gurantee Period

The "Guarantee Period" is a specified duration during which certain terms or conditions of a financial product remain unchanged and are guaranteed by the issuing institution.

Hybrid Index

A "Hybrid Index" refers to a composite financial index that combines the features of two or more individual indices. By blending various asset classes, geographical regions, or market sectors, a hybrid index aims to provide a more diversified and balanced representation of the market or a specific investment theme.

Hybrid Products

Hybrid Products in the financial and investment realm refer to instruments that combine features of two or more distinct financial products, aiming to capitalise on the benefits of each while minimising their individual drawbacks.

IUL Policy Illustrations

An IUL policy illustration is an insurance company's document, offering a hypothetical projection of policy performance over time.

Illustrated Rate

The "Illustrated Rate" refers to a projected rate of return used in financial illustrations to demonstrate the potential growth of an investment or insurance product over time.

Illustrated Rate LookBack Method

The "Illustrated Rate LookBack Method" is a technique used in the financial industry, particularly in the context of insurance and annuity products, to determine a permissible illustrated rate.

Immediate Annuity

An "Immediate Annuity" is a financial product purchased with a single lump-sum payment, in exchange for which the buyer receives guaranteed income payments that begin almost immediately.

Increasing Death Benefit

The "Increasing Death Benefit" is a feature often available in certain life insurance policies, particularly universal and variable life insurance. This provision ensures that the death benefit, or the amount payable to beneficiaries upon the death of the insured, increases over time.

Index Fund

An "Index Fund" is a type of mutual fund or exchange-traded fund (ETF) designed to track and replicate the performance of a specific market index. Instead of relying on active management where fund managers pick and choose individual stocks or bonds, index funds aim to mirror the composition of an established index, such as the S&P 500 or the Nasdaq Composite.

Indexed Annuity

An "Indexed Annuity," also known as a fixed indexed annuity or equity-indexed annuity, is a type of annuity contract that offers potential returns based on the performance of a specific market index, such as the S&P 500.

Indexed Performance

Indexed Performance refers to the return or performance of an investment relative to a specific market index. It provides a benchmark against which the success of an investment strategy can be measured.

Indexed Performance Charge

The "Indexed Performance Charge" is a fee associated with certain investment products, particularly those linked to the performance of a specific market index.

Indexed Universal Life

Indexed Universal Life (IUL) is a type of permanent life insurance that combines the death benefit protection of traditional life insurance with the potential for cash value accumulation based on the performance of a specific market index, often the S&P 500.