Glossary

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529 Plan  A popular college planning tool that usually links the growth of the cash value to the performance of the stock market.  A properly utilized 529 plan will allow for tax free withdrawals strictly for the purposes of college funding.  


Annual Reset  The ability to bypass the market downside and receive a portion of the market upside.  Interest crediting is usually linked to a market index such as the S & P 500.


Beneficiary A person other than a participant who may become eligible to receive, or is receiving, benefits under an insurance policy. 


Cap Rates  The most interest that is allowed in a given calendar year per the policy contract.


Cash surrender value The amount payable to an insured who surrenders cash value life insurance, which terminates all insurance benefits. 

Convertible term life insurance A plan that permits you to exchange the term life insurance policy for a permanent one at some point. 


Face Amount  The amount of tax free death benefit to be paid to the beneficiary in the event of death of the proposed insured.  Otherwise known as the death benefit.


Floor Rates  The least amount of interest that is allowed in a given calendar year per the policy contract.


Indexed Universal life insurance A type of permanent life insurance that will allow the cash value to grow exempt from market volatility while allowing for the capability to withdrawal the funds tax free outside of a MEC.


Indexing  Through annual reset, the ability to credit a portion of the market upside while being able to eliminate the market downside.  Interest crediting is usually linked to a market index such as the S & P 500.


Insurable interest  A requirement that if you want to buy a life insurance policy on someone else's life, you must have an interest in that person remaining alive or expect emotional or financial loss from that person's death. 


Long Term Care Rider  A provision offered through some Universal Life policies that can allow you to receive tax free benefits with respect to long term care.  Typically, these benefits will not kick in until after the 2nd or 3rd calendar year.   


MEC (Modified Endowment Contract)  A type of permanent life insurance designed to maximize a death benefit.  Withdrawals are taxable with respect to the interest earned (outside of the principle).  MECs are determined through a 7 pay test. 


Non MEC (Modified Endowment Contract)  A type of permanent life insurance designed to maximize the living benefits.  Typically the death benefit will be lower compared to a MEC.  However, withdrawals can be structured to be exempt from Federal income taxes.   


Owner  The individual who is funding the policy.  It is not necessarily the person who is being underwritten. The owner can be a different person than the proposed insured.


Paramed  The individual, usually a registered nurse or medical professional that will meet with the proposed insured and gather medical information on behalf of the Insurance Company.  Medical information gathered includes (but not limited to) blood and urine samples with height and weight measurements.  The paramed is usually the first step ordered after the life insurance contract is ordered. 


Permanent (cash value) life insurance A type of life insurance that combines a death benefit with a cash value component that builds over time; offers lifetime protection. 


Policy owner  The owner of a policy is usually the individual that is funding the policy


Proposed insured  The actual person who is being underwritten for the policy


Reserve Pools  State monitored cash pools set in place in order to protect the policy owner with respect to fixed products such as Indexed Universal Life.  In order to offer fixed products, the insurance company must set reserve pools equal to the amount of fixed products being offered.


Risk factors Factors that the insurance company takes into consideration when calculating your premium for permanent or term life insurance; these include your age, your health, whether you use tobacco, your family health history, and the type and amount of life insurance you're buying. 


Term life insurance A type of life insurance that provides coverage for a specified period of time—generally one, 10, 20, or 30 years, or until the insured reaches 65 or 70 years of age.


Underwriting  The process of approving the proposed insured.  This process allows the insurance company to accurately assess the risk of the proposed insured. 


Variable Universal life insurance A type of permanent life insurance in which the cash value fluctuates depending on the investments purchased by the purchaser for his or her portfolio.  Cash free withdrawals are possible in a variable universal life policy when the policy is created as a Non MEC.