Glossary of Terms for Life Settlements
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A [Back to Index]
Accelerated Death Benefit
Life insurance proceeds paid to a terminally ill person before his or her death. Generally, the life expectancy must be 6 to 12 months and the policy owner may receive 25-75% of the policy's face value. Any remainder is paid to the beneficiary after the insured's death.
B [Back to Index]
Beneficiary
The person named by the policy owner to receive the proceeds of the life insurance after the death of the insured.
C [Back to Index]
Cash Value
Cash value can also be referred to on the annual report from your carrier as "Accumulated Value", "Policy Value", or "Account Value." This is the additional amount over the cost of insurance that you've paid into your policy over time. Cash surrender value is calculated by subtracting from the policy's cash value any applicable surrender fees.
Cash Surrender Value
See Surrender Value.
Convertible Term Insurance
Term insurance that can be exchanged at the option of the policy owner and without evidence of insurability (i.e. no medical exam) for a permanent insurance policy.
Cost of Insurance
The portion of your premium payments that cover the cost of receiving the benefit of insurance coverage.
D [Back to Index]
Disability Waiver
A feature in some life insurance policies that keeps the policy in force but forgives the payment of premiums if the insured is totally disabled. This increases the value of a policy in a life settlement transaction.
Dividend
Permanent participating policies (i.e., issued by a mutual company), are the recipients of dividends if the premiums collected by the carrier exceeded their costs for that year.
E [Back to Index]
Escrow
Funds held by a third party until the conditions of a contract are met. In life settlements, the lump sum paid to the insured is held in escrow until the transfer of ownership and change in beneficiary are recorded.
F [Back to Index]
Face Amount
The amount stated on the face of the policy that will be paid in case of death.
G [Back to Index]
Group Life
Policies, usually term, purchased through a group, normally an employer. To be sold in the life settlement market, a group policy must generally be converted to an individual policy.
H [Back to Index]
I [Back to Index]
Insurability
Life insurance companies require evidence that a life insurance applicant is an acceptable risk. This usually includes, but may not be limited to, a medical exam.
Insured
The person whose life is covered by the policy.
Investor
According to the Insurance Studies Institute, "The same institutions that invest in life insurance companies also purchase life insurance policies through life settlements. These include multi-national banks, international corporate conglomerates, global insurance companies, pension funds, hedge funds, investment banks, syndicated funds and other major financial institutions."
J [Back to Index]
K [Back to Index]
L [Back to Index]
Level Premium Life Insurance
Life insurance for which the premium remains the same from year to year.
Life Expectancy
The number of months the individual insured under the life insurance policy can be expected to live as determined by expert analysis of the applicant's medical records.
Life Expectancy Evaluation Providers
Companies that specialize in providing life expectancy estimates so that a life settlement provider can calculate an offer.
Life Settlement
A financial transaction in which a policy owner possessing an unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.
Life Settlement Broker
An entity who, on behalf of a policy owner and for a fee or commission, negotiates a life settlement contract. A broker represents only the policy owner and has a fiduciary duty to act in the policy owner's best interest.
Life Settlement Provider
An entity who purchases a life insurance policy from a policy owner in a life settlement transaction. Providers then sell the policy and other policies to an investor.
M [Back to Index]
N [Back to Index]
Net Death Benefit
The amount of the life insurance policy less any outstanding debts or liens.
O [Back to Index]
P [Back to Index]
Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.
Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer.
Permanent Life Insurance
Any form of life insurance except term. Coverage can last a lifetime, and the insurance will usually build up a cash value.
Policy Issue Date
The original date of policy issuance.
Policy Loan
A loan made by a life insurance company from its general funds to a policy owner on the security of the cash value of a policy. Generally, loans reduce the policy's death benefit and cash value by the amount of the outstanding loan plus interest.
Policyowner
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a trust, partnership or a corporation.
Premium
Payments to the insurance company to buy a policy and to keep it in force.
Premium Frequency
The schedule on which the premium is paid (e.g. monthly, quarterly, etc.)
Q [Back to Index]
R [Back to Index]
S [Back to Index]
Stranger-originated life insurance (STOLI)
When a speculator convinces a senior citizen to buy a life insurance policy for the sole purpose of transferring the policy to the speculator shortly after the sale. Seniors may receive a sales pitch about "free" or "no cost" life insurance or other financial incentives.
Surrender Value
The amount that is available in cash for loans and/or withdrawals. If the policy is surrendered, the cash surrender value is paid to the policy owner. The surrender value is calculated by subtracting the policy's cash value any applicable surrender fees (which can be substantial).
T [Back to Index]
Term Insurance
Policies that pay a death benefit but do not build up cash value. These are normally guaranteed renewable for a specified period of time, or up to a certain age, although premiums can escalate sharply. Level term policies keep premiums fixed for specified periods such as 10, 20 or 30 years.
Terminally Ill
Having an illness or sickness that can reasonably be expected to result in death in 24 months or less.
U [Back to Index]
Universal Life Insurance
A flexible life insurance policy under which the policy owner may change the death benefit from time to time and vary the amount or timing of premium payments.
V [Back to Index]
Variable Life Insurance
A type of whole life insurance that allows the policy owner to invest premiums in stock, bond, and money market funds chosen from the insurance company's portfolio. The cash value and death benefit of this policy is determined by the success of those investments.
W [Back to Index]
Whole Life Insurance
A basic type of permanent life insurance which can provide lifetime protection at a level premium. Premiums must generally be paid for as long as the policy is in force. Whole life insurance policies can build up cash value.
X [Back to Index]
Y [Back to Index]
Z [Back to Index]
1 Understanding Life Settlements and Industry Issues Entering 2008, Insurance Studies Institute, 2008
