Glossary of Indexed Universal Life (IUL) terms

 

Welcome to The Policy Shop‘s comprehensive glossary of Indexed Universal Life Insurance (IUL) terms. Organized alphabetically, this resource contains the key words commonly used in the world of IULs. Our mission is to educate and empower our customers by providing clarity on the terminology and concepts essential to understanding Indexed Universal Life Insurance. Whether you’re navigating the nuances of Indexed Universal Life insurance (life Insurance) policies or seeking to expand your knowledge in this field, this glossary is designed to be your go-to reference for all things related to Indexed Universal Life Insurance. Explore the alphabetical listings and unlock the insights needed to make informed decisions about your financial future with IULs.

 

0-9

1035 Exchange

1035 Exchange is a method of swapping an existing life insurance or annuity policy for a new policy with a different firm that is tax-free. This process is frequently used when it is in the policyholder’s best interest to switch to a more advantageous contract with better rates or features than the one they presently have (1035 refers to the tax code number).

 

2-Year Treasury Note

A 2-Year Treasury Note is a US government-issued fixed-interest security with a two-year maturity period.

 

5-Year Constant Maturity Treasury Rate

5-Year Constant Maturity Treasury Rate is an index by the Federal Reserve Board computed based on the average yield of various Treasury securities, typically adjusted to five-year maturity.

---

 

 

A

A.M. Best Rating

A.M. Best Rating is an independent assessment of an insurer’s financial power and capacity to meet ongoing insurance policy and contract obligations, by the A.M Best Firm.

Account Value

Account Value is the annuity’s gross value before any loans, premium taxes, Market Value Adjustments, or surrender charges.

Accumulate At Interest

Accumulate at interest is a dividend option typically offered on participating whole life insurance contracts, in which dividends are deposited with the insurer and earn additional interest.

Annual Step-up

Annual Step-Up is a popular feature on optional Guaranteed Lifetime Withdrawal Benefit riders. It raises the Benefit Base to the greater between the Benefit Base and the Account Value each year.

Annualized

Interest rates computed as an annual rate are considered Annualized.

Annuitant

The Annuitant is the person or entity who receives an annuity’s benefits.

Annuitization Bonus

Annuitization bonus is a provision available on some Fixed, Variable, and Indexed Annuities that allows the insurance company issuing the annuity to credit the contract’s Account Value with a specified percentage of additional money if the contract is annuitized.

Annuitize

Annuitize is a term that describes converting an annuity contract from a cash accumulation option to a periodic distribution of funds.

Annuity

An annuity is a contract in which a person agrees to pay premiums to an insurance company in exchange for a continuous stream of income payments from the issuer, either now or at a later date.

Annuity Linked TVI Index

The Annuity Linked TVI INDEX is a volatility control overlay-tied index linked to the Trader Vic Index. The Trader Vic Index seeks to capture rising and falling price trends by holding long and short positions on 24 futures markets across commodities, foreign exchange asset classes, and fixed income monthly.

Automatic Premium Loan (APL)

Automatic premium loan (APL) is a sort of Non-Forfeiture Option available on cash value life insurance plans that uses the policy’s cash value at the time of lapse to pay for the premium due. Despite an APL, loan interest will accrue.

 

---

 

B

Bailout Provision

Bailout provision is a clause in an annuity contract that allows the contract owner to surrender the contract without incurring a surrender charge if renewal interest rates or Caps fall below a pre-determined level.

Barclays Capital Aggregate Bond Index

The Barclays Capital Aggregate Bond Index, originally known as the “Lehman Aggregate Bond Index,” is a broad-based index maintained by Barclays Capital representing investment-grade bonds traded in the United States.

Base Policy

The base policy is the principal coverage that pays after the insured passes away.

Beneficiary

When the contract owner or annuitant dies, the beneficiary is the person or legal entity who receives the annuity Death Benefit.

Benefit Base

The benefit base value on an annuity’s optional Guaranteed Lifetime Withdrawal Benefit rider is the secondary “shadow fund” value on which the annuitant’s Guaranteed Withdrawal Payments are calculated. This value is distinct from the Account Value, and it can only be obtained by making Guaranteed Withdrawal Payments.

Benefit Base Bonus

Benefit base bonus is a feature that applies a premium bonus to the Benefit Base of the Guaranteed Lifetime Withdrawal Benefit rider. This bonus is not accessible in the event of a cash surrender; it just raises the “shadow fund” value, which is used to compute Guaranteed
Withdrawal Payments.

Broker/Dealer

A broker is “any person engaged in the business of effecting transactions in securities for the account of another,” as defined by the Securities Exchange Act of 1934. “Any person involved in the business of buying or selling securities for his own account” is referred to as a dealer. As a result, a broker/dealer trades for their account and other people’s accounts.

---

 

 

C

Cap Rate

The cap rate is the maximum interest rate used in the crediting computation on an Indexed Annuity. A Participation Rate or a Spread Rate may also be used in indexed crediting mechanisms.

Cash

Cash is a payout option usually available on whole life insurance plans that allows the policy owner to receive dividends in cash (mostly in the form of a check).

Cash Accumulation

Cash accumulation is a product objective utilized in pricing cash value life insurance plans when the primary goal is to accumulate cash values.

Cash Surrender Value

Cash surrender value is the amount an insurance policyholder is entitled to if they decide to stop paying the premiums.

Certificate Of Deposit(CD)

A certificate of deposit (CD) is a receipt given by a bank for a cash deposit at a predetermined interest rate for a specified time. The bank pays the depositor the principal plus all accrued interest when the account matures.

Combo Products

Long-term care benefits combined with another type of insurance, such as annuities or life insurance, are referred to as combo products.

Compound Interest

Compound interest is an interest crediting whereby in addition to the interest, interest is credited on the principal payment.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is a time series measure of consumer goods and services prices in the United States.

Consumer Price Index – URBAN (CPI-U)

The Consumer Price Index-Urban (CPI-U) is the government’s approach for estimating the purchasing habits of roughly 80% of the non-institutional population in the United States.

Contract Owner

The Contract Owner is the individual or business that applies for and obtains an annuity contract, and the individual or company is responsible for funding the annuity.

Crediting Method

On an Indexed Annuity, the Crediting Method is a premium allocation option that specifies the method for crediting interest on the annuity contract.

---

 

 

D

Death Benefit

The amount of money that is paid out to the designated beneficiaries upon the death of the insured individual. In an IUL policy, the death benefit is typically income-tax-free and can provide financial protection to the policyholder’s loved ones.

Deferred Annuity

 An annuity contract where payments to the annuitant are delayed until a later date, often during retirement. Deferred annuities can accumulate funds over time, providing a stream of income in the future.

Direct Recognition

 A method used by insurance companies to adjust the interest credited to the cash value account based on the policy’s loan status. In direct recognition, the insurer acknowledges and adjusts for any outstanding policy loans when determining the interest credited to the cash value.

Dividends

Payments made by a mutual insurance company to its policyholders based on the company’s profits. In the context of IUL, dividends may be used to enhance the policy’s cash value or to purchase additional insurance coverage.

Dow Jones Industrial Average (DJIA)

 A stock market index that tracks the performance of 30 large, publicly-owned companies in the United States. The DJIA is commonly used as a benchmark for the overall stock market performance.

Dow Jones World-EX. U.S. Index

An index that measures the performance of global stock markets excluding the United States. It provides investors with insight into international equity market trends.

Due Diligence

The process of conducting thorough research and investigation before entering into a financial transaction, such as purchasing an insurance policy. It involves assessing the terms, conditions, and risks associated with the investment.

---

 

 

 

E

 

Enhanced Death Benefit

 An optional feature in an IUL policy that provides additional protection by increasing the death benefit under certain circumstances, such as in the event of accidental death or terminal illness.

Euro Stoxx 50

 A stock market index that tracks the performance of 50 large European companies from 11 Eurozone countries. It is used as a benchmark for the European equity market.

Exclusion Ratio

In the context of annuities, the exclusion ratio is used to determine the portion of each annuity payment that is considered a return of principal and therefore not subject to income tax. It is calculated based on the initial investment amount and the expected payout.

Executor

 A person or institution appointed to carry out the instructions outlined in a person’s will and manage the distribution of their assets after death.

Expenses

 The costs associated with maintaining and administering an insurance policy or annuity contract, including administrative fees, mortality charges, and other operational expenses.

Extended No-Lapse Guarantee

 An optional feature in an IUL policy that ensures the policy remains in force for a specified period, even if the cash value is insufficient to cover the insurance charges. It provides additional security and peace of mind to the policyholder.

Extended Term Insurance (ETI)

 An option available in some life insurance policies, including IUL, where the policyholder can use the accumulated cash value to purchase additional term insurance coverage beyond the original policy term.

 

---

 

F

 

Face Amount

 Also known as the face value or coverage amount, the face amount is the total amount of insurance coverage provided by a life insurance policy. It represents the sum of money paid out to the beneficiaries upon the death of the insured individual.

Fifo To Lifo

FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) are methods used for accounting and inventory management. In the context of annuities, FIFO to LIFO refers to the order in which withdrawals are treated for tax purposes. FIFO means that the first funds deposited into the annuity are the first funds withdrawn, while LIFO means that the last funds deposited are the first to be withdrawn.

Fee-based Annuity

 An annuity contract that charges fees based on a percentage of the assets under management or a flat fee structure. These fees are separate from any commissions earned by the annuity salesperson and may include management fees, administrative fees, and investment advisory fees.

Final Expense

 A type of life insurance policy designed to cover the expenses associated with a person’s funeral, burial, and other end-of-life costs. Final expense insurance typically has a lower face amount compared to traditional life insurance policies.

Financial Industry Regulatory Authority (FINRA)

 FINRA is a self-regulatory organization that regulates brokerage firms and exchange markets in the United States. It oversees the behavior of brokers and brokerage firms to ensure compliance with securities laws and protect investors.

Fixed Account Rate

 The fixed account rate, also known as the guaranteed interest rate, is the minimum interest rate guaranteed by the insurance company for funds allocated to the fixed account within an annuity contract. It provides a stable rate of return and protects the principal from market fluctuations.

Fixed Annuity

 A type of annuity contract that guarantees a fixed rate of return on the invested funds for a specified period. Fixed annuities offer stable and predictable income payments, making them suitable for individuals seeking retirement income with minimal risk.

Fixed Loan Interest

The fixed loan interest rate is the interest rate charged by the insurance company when the policyholder borrows funds against the cash value of a permanent life insurance policy, such as an IUL. This rate remains fixed for the duration of the loan and is typically lower than the interest rate charged by banks or other lenders.

Flexible Premium Deferred Annuity (FPDA)

 A type of deferred annuity that allows the annuitant to make flexible premium payments over time. FPDA contracts offer flexibility in funding and provide the opportunity for tax-deferred growth on the invested funds until withdrawals begin.

Floor

 In the context of indexed annuities, a floor refers to the minimum guaranteed interest rate that the annuity will earn, regardless of market performance. It provides downside protection and ensures that the annuitant’s principal is preserved, even in a declining market.

Forced Asset Allocation Model

 A predetermined asset allocation strategy used in certain annuity contracts that automatically adjusts the allocation of assets based on the annuitant’s age, risk tolerance, and investment objectives. Forced asset allocation models aim to optimize investment returns while minimizing risk.

Free Look Period

 The free look period is a specified period, typically 10 to 30 days, during which the policyholder can review their annuity contract and cancel it without incurring any penalties or fees. It provides the policyholder with an opportunity to evaluate the annuity terms and features before making a final decision.

Free Withdrawal Provision

 A provision in an annuity contract that allows the annuitant to withdraw a certain percentage of the accumulated value each year without incurring surrender charges or penalties. Free withdrawal provisions provide flexibility and liquidity to the annuity owner.

FTSE 100

 The Financial Times Stock Exchange 100 Index (FTSE 100) is a stock market index that measures the performance of the 100 largest companies listed on the London Stock Exchange (LSE) based on market capitalization. It is widely used as a benchmark for the UK equity market.

 

---

 

 

G

 

General Account

 The general account refers to the investment portfolio maintained by the insurance company to support its general obligations, including paying policy benefits, operating expenses, and other liabilities. It typically consists of fixed-income securities, such as bonds and mortgages, and provides the basis for guaranteed interest rates and other policy features.

Gold Commodity

 Gold commodity refers to physical gold or gold-related investments that are traded on commodity exchanges. In the context of annuities, gold commodities may be included as part of the investment options available within variable annuity contracts, offering investors exposure to the price movements of gold.

Guaranteed Lifetime Withdrawal Benefit (GLWB)

 A guaranteed lifetime withdrawal benefit is a rider available with certain annuity contracts that guarantees a minimum level of lifetime income payments to the annuitant, regardless of market performance or account value. It provides income security during retirement and ensures that the annuitant will receive regular payments for life.

Guaranteed Minimum Accumulation Benefit (GMAB)

The guaranteed minimum accumulation benefit is a rider offered with certain annuity contracts that guarantees a minimum rate of return on the invested funds, typically upon annuitization or at the end of a specified period. It protects the principal from market downturns and ensures that the annuitant will receive a minimum level of accumulation value.

Guaranteed Minimum Death Benefit (GMDB)

 The guaranteed minimum death benefit is a feature of certain life insurance and annuity contracts that guarantees a minimum payout to the beneficiary upon the death of the insured or annuitant, regardless of the performance of the underlying investments. It provides financial security to the beneficiary and ensures that a minimum benefit will be paid out.

Guaranteed Minimum Income Benefit (GMIB)

The guaranteed minimum income benefit is a rider available with certain annuity contracts that guarantees a minimum level of lifetime income payments to the annuitant, typically upon annuitization or at a future date. It provides income security during retirement and ensures that the annuitant will receive regular payments, regardless of market performance.

Guaranteed Minimum Withdrawal Benefit (GMWB)

 A guaranteed minimum withdrawal benefit is a rider available with certain annuity contracts that guarantees a minimum level of withdrawals from the annuity account, typically without incurring surrender charges or penalties. It provides flexibility and liquidity to the annuitant while ensuring that a minimum level of income is available.

Guaranteed Withdrawal Payments

Guaranteed withdrawal payments refer to the periodic income payments provided by certain annuity contracts, typically through riders such as the guaranteed lifetime withdrawal benefit (GLWB) or guaranteed minimum withdrawal benefit (GMWB). These payments are guaranteed by the insurance company and provide income security to the annuitant during retirement.

Guarantee Period

 The guarantee period is the duration for which certain policy features or benefits are guaranteed by the insurance company, such as the guaranteed minimum accumulation benefit (GMAB) or guaranteed minimum income benefit (GMIB). It provides reassurance to the policyholder or annuitant that specific benefits will be available for a predetermined period, regardless of market conditions.

Guaranteed Death Benefit

 The guaranteed death benefit is the minimum amount that will be paid out to the beneficiary upon the death of the insured or annuitant, as specified in the life insurance or annuity contract. It provides financial security to the beneficiary and ensures that a minimum benefit will be received, regardless of market performance or account value.

---

 

H

Hang Seng

 The Hang Seng Index (HSI) is a stock market index that reflects the performance of the largest companies listed on the Hong Kong Stock Exchange. It serves as a benchmark for the Hong Kong equity market and may be used as an underlying index for certain indexed annuity products.

Hybrid Index

A hybrid index is a financial index composed of multiple underlying assets or components, such as stocks, bonds, commodities, or other financial instruments. It offers diversified exposure to different asset classes and may be used as a benchmark for indexed annuity or indexed universal life insurance products.

Hybrid Products

Hybrid products are financial instruments that combine features of different investment or insurance products, such as indexed annuities or indexed universal life insurance policies. They typically offer a combination of principal protection, market participation, and other benefits tailored to the needs of the policyholder or annuitant.

 

---

 

 

 

I

Illustrated Rate

 The illustrated rate is the projected rate of return or interest credited to the cash value component of an indexed universal life insurance policy, as illustrated in policy illustrations provided by the insurance company. It helps policyholders understand how their policy may perform over time based on certain assumptions.

Illustrated Rate Lookback Method

 The illustrated rate lookback method is a calculation used to determine the credited interest rate for the cash value component of an indexed universal life insurance policy. It typically involves looking back over a specified period, such as a year, and applying a formula based on the performance of the underlying index.

Immediate Annuity

 An immediate annuity is a type of annuity contract that provides a stream of income payments to the annuitant starting immediately or within a short period after the contract is purchased. It offers income security during retirement and may be funded with a lump sum payment or periodic contributions.

Increasing Index

 An increasing index is a financial index that reflects the performance of underlying assets that are expected to increase in value over time, such as certain stocks or commodities. It may be used as an underlying index for indexed annuity or indexed universal life insurance products that offer growth potential based on market appreciation.

Indexed Annuity

 An indexed annuity is a type of annuity contract that offers a return based on the performance of a specified financial index, such as the S&P 500 or Hang Seng Index. It provides the opportunity for growth linked to market performance while offering downside protection through a guaranteed minimum interest rate.

Indexed Universal Life

Indexed universal life (IUL) insurance is a type of permanent life insurance policy that offers death benefit protection and a cash value component linked to the performance of a specified financial index. It provides flexibility, potential for cash value growth, and downside protection, making it suitable for long-term financial planning.

Indexed Whole Life

 Indexed whole life insurance is a variation of whole life insurance that offers a cash value component linked to the performance of a specified financial index. It provides death benefit protection, guaranteed premiums, and potential for cash value growth based on market performance, offering policyholders a combination of security and growth potential.

Indices

 Indices, also known as indexes, are statistical measures that track the performance of a group of assets, such as stocks, bonds, or commodities. They serve as benchmarks for evaluating the performance of investment portfolios or financial products like indexed annuities and indexed universal life insurance policies.

 

Individual Retirement Account (IRA)

 An Individual Retirement Account (IRA) is a tax-advantaged retirement savings account that individuals can contribute to on a regular basis. It offers potential tax benefits, such as tax-deferred growth or tax-free withdrawals in retirement, and may be funded with a variety of investment options, including indexed annuities or indexed universal life insurance.

 

Insolvency

 Insolvency refers to the financial condition of a company or individual who is unable to meet their financial obligations, such as paying debts or fulfilling insurance policy benefits. In the context of insurance, insolvency may impact policyholders’ ability to receive benefits if an insurance company becomes insolvent and is unable to fulfill its contractual obligations.

 

Insurable Interest

Insurable interest is the financial stake or relationship that an individual or entity has in the life or property of another person. In the context of insurance, an insurable interest is necessary to purchase an insurance policy, ensuring that the policyholder has a legitimate reason to protect against potential financial loss.

 

Insured

The insured refers to the individual or entity covered by an insurance policy, such as an indexed universal life insurance policy or an annuity contract. The insured may be the owner of the policy or the beneficiary who will receive benefits in the event of a covered loss or event.

 

Interest Rate Bonus

 An interest rate bonus is an additional amount of interest credited to the cash value component of an indexed universal life insurance policy or an annuity contract. It may be provided as an incentive or promotional feature by the insurance company to attract policyholders or annuitants and enhance the policy’s growth potential.

 

Interest-Sensitive Whole Life

 Interest-sensitive whole life insurance is a type of permanent life insurance policy that offers a cash value component whose growth is influenced by prevailing interest rates. It provides death benefit protection, guaranteed premiums, and potential for cash value accumulation based on interest rate fluctuations, making it suitable for long-term financial planning.

---

 

 

 

J

Joint Annuitant

 A joint annuitant is an individual named in an annuity contract who will receive annuity payments along with the primary annuitant, typically a spouse or partner. Joint annuitants may receive payments for their lifetime or a specified period, providing income security for both individuals during retirement.

Joint Owner

 A joint owner is an individual who shares ownership rights and responsibilities with another person, such as in the ownership of an annuity contract or an indexed universal life insurance policy. Joint owners have equal rights to manage the policy or contract and may designate beneficiaries or make changes to the ownership structure.

 

---

 

 

L

 

Lehman Brothers Aggregate Bond Index

 The Lehman Brothers Aggregate Bond Index, now known as the Bloomberg Barclays Aggregate Bond Index, is a broad-based benchmark that tracks the performance of the U.S. investment-grade bond market. It serves as a measure of the overall bond market performance and may be used as a reference index for certain annuity products or indexed universal life insurance policies.

Level

 In the context of annuities or insurance policies, “level” refers to a consistent or fixed payment amount, premium, or interest rate that remains unchanged over a specified period. For example, a level premium annuity requires the annuitant to pay the same premium amount throughout the annuity’s term, providing predictability and stability in financial planning.

Limited Premium

A limited premium refers to a payment structure for annuities or insurance policies where premiums are required for a specified period, after which no further premium payments are needed to keep the policy in force. Limited premium options offer flexibility and may be suitable for individuals looking to pay off their policy within a certain timeframe.

Linked Benefit Products

 Linked benefit products are hybrid insurance products that combine features of different types of insurance, such as life insurance, long-term care insurance, and annuities. They offer policyholders the ability to access benefits for multiple financial needs, such as income protection, asset growth, and long-term care coverage, through a single insurance product.

Loan Interest Reduction

Loan interest reduction refers to a feature available in certain indexed universal life insurance policies or annuity contracts that allows policyholders or annuitants to reduce the interest rate charged on outstanding policy loans. It provides cost-saving benefits and may help policyholders manage their policy loans more effectively over time.

Loan Reduction

 Loan reduction is a process in which the outstanding balance of a policy loan against an indexed universal life insurance policy or annuity contract is gradually paid off over time. Policyholders or annuitants may choose to make regular payments towards the loan principal, reducing the overall debt and interest charges associated with the policy loan.

Long-Term Care (LTC) Kicker

 A long-term care (LTC) kicker is a rider or feature available in certain annuity contracts or indexed universal life insurance policies that provides additional benefits or income to cover long-term care expenses. It offers policyholders or annuitants financial protection against the costs of long-term care services, such as nursing home care or home healthcare, while preserving their retirement assets.

 

---

 

 

M

 

Market Value Adjustment (MVA)

Market value adjustment (MVA) is a provision found in some fixed annuity contracts that allows the insurance company to adjust the annuity’s surrender value based on changes in interest rates or market conditions at the time of surrender. An MVA may result in a higher or lower surrender value compared to the contract’s stated surrender value, depending on prevailing market conditions.

Maturity Date

The maturity date is the date on which an annuity or insurance policy reaches the end of its contract term and the benefits become payable to the annuitant or policyholder. For annuities, the maturity date typically marks the start of the payout phase, where annuity payments begin. In the case of life insurance policies, the maturity date is when the policy reaches its endowment age, and the death benefit is paid out.

Maximum Rollup Period

The maximum rollup period is the maximum duration during which an indexed annuity’s accumulation value may be credited with interest based on the performance of an underlying index. It represents the timeframe over which the annuity’s growth potential is realized before the start of the annuity’s payout phase, offering policyholders the opportunity for wealth accumulation during the accumulation phase.

Modified Endowment Contract (MEC)

 A Modified Endowment Contract (MEC) is a life insurance policy that has been funded with premium payments exceeding certain limits set by the Internal Revenue Service (IRS). When a life insurance policy becomes classified as a MEC, it loses certain tax advantages, such as tax-deferred growth and tax-free withdrawals, and may be subject to additional taxes and penalties on distributions.

Minimum Guaranteed Surrender Value (MGSV)

The minimum guaranteed surrender value (MGSV) is the minimum amount of cash value that an indexed universal life insurance policy or annuity contract guarantees to pay out to the policyholder or annuitant upon surrendering the policy or contract before its maturity date. It provides policyholders or annuitants with a level of financial protection and ensures that they receive a minimum value for their policy or contract, regardless of market conditions.

Monthly Expense Charge (PER 1,000)

The monthly expense charge (per 1,000) is a fee deducted from the cash value component of an indexed universal life insurance policy or annuity contract on a monthly basis to cover administrative expenses and policy maintenance costs. It is typically calculated as a percentage of the policy’s cash value or as a fixed amount per thousand dollars of coverage and may vary based on the policy’s terms and conditions.

Mortality and Expense (M&E) Risk Charge

The mortality and expense (M&E) risk charge is a fee deducted from the cash value component of an indexed universal life insurance policy or annuity contract to cover the insurance company’s costs associated with providing death benefit protection and administrative services. It helps offset the insurer’s risk of paying out death benefits and ensures the stability and sustainability of the policy or contract over time.

Mortality Charges

Mortality charges, also known as cost of insurance charges, are fees deducted from the cash value component of an indexed universal life insurance policy or annuity contract to cover the risk of insuring the policyholder or annuitant against premature death. They are based on factors such as the insured individual’s age, gender, health status, and coverage amount, and help ensure the financial stability and solvency of the insurance company.

MSCI EAFE

 MSCI EAFE (Europe, Australasia, and Far East) is a widely recognized stock market index that represents the performance of developed market equities outside of North America. It serves as a benchmark for international equity investments and may be used as an underlying index for certain indexed annuity or indexed universal life insurance products that offer exposure to international markets.

MSCI Emerging Markets

 MSCI Emerging Markets is an equity index that tracks the performance of stocks traded in emerging market countries around the world. It provides investors with exposure to the growth potential of economies in developing regions and may be used as a reference index for certain indexed annuity or indexed universal life insurance products that offer diversification across emerging markets.

Multi-Year Guaranteed Annuity (MYGA)

 A multi-year guaranteed annuity (MYGA) is a type of fixed annuity contract that guarantees a specified interest rate for a predetermined period, typically ranging from one to ten years. It provides annuitants with a stable and predictable income stream, protection against market volatility, and the flexibility to choose the annuity term that best fits their financial goals and retirement needs.

---

 

 

 

N

NASDAQ

The NASDAQ, short for the National Association of Securities Dealers Automated Quotations, is a global electronic marketplace where securities are bought and sold, including stocks, options, and exchange-traded funds (ETFs). It is known for its focus on technology and growth-oriented companies and is one of the largest stock exchanges in the world by market capitalization.

NASDAQ-100

The NASDAQ-100 is an index composed of the 100 largest non-financial companies listed on the NASDAQ stock exchange based on market capitalization. It includes leading technology, biotechnology, and retail companies, among others, and serves as a benchmark for investors interested in tracking the performance of large-cap growth stocks.

National Association of Insurance Commissioners (NAIC)

The National Association of Insurance Commissioners (NAIC) is a regulatory organization composed of insurance regulators from all 50 U.S. states, the District of Columbia, and five U.S. territories. It develops model laws and regulations to promote uniformity and consistency in insurance regulation across jurisdictions and protects policyholders’ interests.

National Association of Securities Dealers (NASD)

The National Association of Securities Dealers (NASD) was a self-regulatory organization responsible for overseeing the activities of broker-dealers and securities firms in the United States. It was later merged with the regulatory arm of the New York Stock Exchange (NYSE) to form the Financial Industry Regulatory Authority (FINRA), which regulates broker-dealers and protects investors.

New Money

New money refers to funds that are newly invested or deposited into an investment or financial product, such as an annuity or insurance policy. It represents fresh capital that has not been previously invested or used for other purposes and may be subject to specific terms and conditions depending on the investment vehicle.

New Money Rates

New money rates refer to the interest rates or yields offered on newly invested funds in an annuity or insurance policy. They represent the returns that policyholders or annuitants can earn on their new contributions or deposits and may be determined based on prevailing market conditions, investment performance, and contractual terms set by the insurance company.

NIKKEI 225

The NIKKEI 225, commonly referred to as the Nikkei Stock Average or Nikkei Index, is a stock market index that tracks the performance of 225 large-cap companies listed on the Tokyo Stock Exchange in Japan. It serves as a benchmark for Japanese equities and is widely followed by investors and financial professionals as an indicator of the Japanese stock market’s overall health and direction.

No-Lapse Guarantee

A no-lapse guarantee is a feature offered in certain life insurance policies, such as universal life insurance or indexed universal life insurance, that ensures the policy remains in force as long as the required premiums are paid, regardless of changes in cash value or market conditions. It provides policyholders with peace of mind knowing that their coverage will not lapse due to insufficient funds or adverse investment performance.

Non-Direct Recognition

Non-direct recognition is a policy feature in some permanent life insurance policies, such as indexed universal life insurance, where the insurance company does not reduce the policy’s cash value or dividends when the policyholder takes out a policy loan. Instead, the cash value continues to earn interest or dividends as if the loan had not been taken, providing potential benefits to the policyholder over time.

Non-Forfeiture Options

Non-forfeiture options are provisions in life insurance policies, such as whole life insurance or universal life insurance, that allow policyholders to retain some value from their policies if they lapse or surrender them prematurely. Common non-forfeiture options include converting the policy’s cash value into a reduced paid-up policy, extended term insurance, or receiving the cash surrender value in a lump sum.

Non-Forfeiture Provision

A non-forfeiture provision is a contractual clause in life insurance policies that guarantees policyholders a minimum value or benefit if the policy lapses or is surrendered before maturity. It ensures that policyholders do not lose all the value built up in their policies and have options to retain some benefits or receive a payout in the event of policy termination.

Non-Participating

Non-participating refers to a type of insurance policy, such as a non-participating whole life insurance policy, where policyholders do not participate in the insurer’s profits or receive dividends. Non-participating policies typically have fixed premiums, death benefits, and cash values determined by the insurance company, providing policyholders with predictable benefits and costs over time.

Non-Qualified Annuity

A non-qualified annuity is an annuity contract purchased with after-tax funds, such as personal savings or non-retirement assets, rather than funds from a tax-advantaged retirement account like an Individual Retirement Account (IRA) or 401(k) plan. Non-qualified annuities offer tax-deferred growth on earnings and provide a source of retirement income for individuals who have already maximized their qualified retirement savings options.

Non-Rolling Surrender Charge

A non-rolling surrender charge is a fee charged by the insurance company when a policyholder surrenders or cancels an annuity or life insurance policy within a specified period after purchase. Unlike rolling surrender charges, which decrease over time, non-rolling surrender charges remain constant throughout the surrender charge period, providing policyholders with transparency and predictability regarding surrender costs.

---

 

 

O

One-Year Term Insurance

One-year term insurance is a type of term life insurance policy that provides coverage for a specific period, typically one year. It offers death benefit protection for the policyholder during that year and may be renewable annually, although premiums may increase with each renewal based on the insured’s age and health status. One-year term insurance is often used as a temporary or short-term solution for individuals who need life insurance coverage for a limited time period.

Options

Options refer to contractual rights or privileges granted to policyholders or investors that allow them to buy or sell securities, assets, or financial products at a predetermined price within a specified time frame. In the context of insurance, options may include features or riders that provide additional benefits or flexibility, such as the option to purchase additional coverage, adjust premium payments, or access policy cash values.

---

 

 

 

P

Paid-Up Additional Insurance (PUA)

Paid-up additional insurance (PUA) is a feature available in some permanent life insurance policies, such as whole life insurance or universal life insurance, that allows policyholders to use dividends or excess cash values to purchase additional coverage without undergoing medical underwriting. PUAs increase the policy’s death benefit and cash value accumulation over time, providing enhanced financial protection and potential for growth.

Partial Surrender

A partial surrender is a withdrawal or surrender of a portion of the cash value from a permanent life insurance policy, such as whole life insurance or universal life insurance, before the policy’s maturity or death benefit payout. Policyholders may choose to make partial surrenders to access cash for financial needs or emergencies, but doing so may reduce the policy’s death benefit and cash value accumulation.

Participating

Participating refers to a type of life insurance policy, such as a participating whole life insurance policy, where policyholders are eligible to receive dividends from the insurance company’s profits. Policyholders share in the insurer’s financial success through the payment of dividends, which can be used to increase the policy’s cash value, purchase additional coverage, or receive as cash payments.

Participating Fixed Rate Loan Interest

Participating fixed rate loan interest is the interest rate charged by the insurance company on policy loans taken by policyholders against the cash value of participating whole life insurance policies. It is a predetermined fixed rate set by the insurer and may be lower than prevailing market interest rates, providing policyholders with affordable borrowing options while maintaining the policy’s cash value growth.

Participation Rate

The participation rate is a key factor used to determine the amount of index-linked interest credited to an indexed universal life insurance policy’s cash value based on the performance of an underlying stock market index, such as the S&P 500. It represents the percentage of the index’s positive returns that are credited to the policy’s cash value, subject to certain caps, spreads, or other limitations specified in the policy.

Payor

A payor is an individual responsible for making premium payments on an insurance policy, such as a life insurance policy, on behalf of the insured. The payor may be the policyholder themselves, a parent, guardian, or other third-party responsible for ensuring that the policy remains in force by paying the required premiums in a timely manner.

Penalty-Free Withdrawals

Penalty-free withdrawals refer to withdrawals or distributions taken from an annuity or life insurance policy that are exempt from early withdrawal penalties or surrender charges imposed by the insurance company. Policyholders may be allowed to withdraw a certain amount of funds each year without incurring penalties, providing them with flexibility and access to their money when needed.

Per 1,000 Charges

Per 1,000 charges refer to fees or charges assessed by the insurance company on a per $1,000 basis of the policy’s face amount or cash value. These charges may include mortality and expense (M&E) fees, administrative fees, or other costs associated with maintaining the policy, and are typically deducted from the policy’s cash value or premium payments.

Percent (%) Of Fund Charge

The percent (%) of fund charge is a fee charged by the insurance company as a percentage of the policy’s cash value or account value invested in certain investment funds or portfolios offered within variable life insurance or annuity contracts. It represents the cost of managing and administering the investment options and is deducted from the fund’s returns before they are credited to the policyholder’s account.

Period Certain

 Period certain is a term used in annuities to describe a payout option where annuity payments are guaranteed to be made for a specified period of time, regardless of the annuitant’s lifespan. If the annuitant dies before the end of the period certain, payments continue to the designated beneficiary until the end of the specified period. Period certain provides income certainty and financial protection for a predetermined duration.

Pimco U.S. Advantage Index

The PIMCO U.S. Advantage Index is an index used as a benchmark for certain indexed universal life insurance policies, particularly those offered by Pacific Life Insurance Company. It is designed to track the performance of a diversified portfolio of fixed income securities, providing policyholders with the potential for index-linked interest credits based on the index’s performance.

Policy Fee

A policy fee is a flat charge assessed by the insurance company to cover administrative costs associated with issuing and maintaining an insurance policy, such as processing paperwork, policy issuance, and customer service. Policy fees are typically deducted from the policy’s cash value or premium payments and may be charged annually or on a periodic basis as specified in the policy contract.

Policyowner

The policyowner is the individual or entity that owns an insurance policy and has the rights, benefits, and responsibilities outlined in the policy contract. The policyowner may be the insured individual themselves, a family member, a trust, or a business entity, depending on the type of policy and the circumstances surrounding its purchase. As the policyowner, they have the authority to make changes to the policy, designate beneficiaries, and access policy values.

Portfolio

 A portfolio refers to the collection of investments or assets held by an individual, institution, or entity, such as an insurance company. In the context of insurance, portfolios may include various investment options offered within variable life insurance or annuity contracts, such as mutual funds, stocks, bonds, or money market instruments. The composition of the portfolio may be tailored to meet specific investment objectives, risk tolerance, and time horizon.

Portfolio-Based Rates

Portfolio-based rates are interest rates or crediting rates linked to the performance of a specific investment portfolio or asset allocation strategy offered within a variable life insurance or annuity contract. They represent the returns earned on the policy’s cash value based on the investment performance of the underlying portfolio, which may include stocks, bonds, or other securities.

Preferred Loans

Preferred loans are loans taken by policyholders against the cash value of their life insurance policies, such as whole life insurance or universal life insurance, at favorable terms and conditions offered by the insurance company. These loans typically have lower interest rates, flexible repayment options, and minimal impact on the policy’s cash value accumulation, providing policyholders with convenient borrowing options while preserving the policy’s benefits.

Premature Withdrawal

A premature withdrawal refers to a withdrawal or distribution taken from an annuity or life insurance policy before the specified withdrawal age, surrender period, or maturity date outlined in the policy contract. Premature withdrawals may be subject to surrender charges, withdrawal penalties, or tax consequences imposed by the insurance company or tax authorities, depending on the terms of the policy and applicable regulations.

Premium Bonus

 A premium bonus is an additional amount credited to the cash value of an insurance policy, such as a whole life insurance or universal life insurance policy, by the insurance company as an incentive or promotional offer for premium payments made by the policyholder. Premium bonuses may enhance the policy’s cash value accumulation and death benefit over time, providing policyholders with added value and potential for growth.

Premium Load

A premium load is a fee or charge assessed by the insurance company on premium payments made by the policyholder towards an insurance policy, such as a whole life insurance or universal life insurance policy. It represents a percentage of the premium amount and is deducted by the insurer to cover sales commissions, administrative expenses, and other costs associated with issuing and maintaining the policy.

Premium Mode

Premium mode refers to the frequency at which premium payments are made by the policyholder towards an insurance policy, such as monthly, quarterly, semi-annually, or annually. It determines the timing and frequency of premium payments and may impact the total cost of the policy, as some insurance companies offer discounts or charge additional fees based on the chosen premium mode.

Premium Reduction

Premium reduction refers to a decrease in the amount of premium payments required by the policyholder towards an insurance policy, resulting from factors such as dividends, premium bonuses, or changes in the policy’s coverage or benefits. Premium reductions may help policyholders save money on insurance costs while maintaining their coverage and may be available in certain types of permanent life insurance policies.

Premium Tax

Premium tax is a tax imposed by state governments on insurance premiums paid by policyholders towards insurance policies issued within the state’s jurisdiction. It is typically calculated as a percentage of the premium amount and may be collected by the insurance company on behalf of the state government. Premium tax revenues are used to fund various state programs, services, and regulatory activities related to insurance.

Premium Type

 Premium type refers to the method or structure used to determine the amount and timing of premium payments required by the policyholder towards an insurance policy. Common premium types include level premiums, where the premium amount remains constant throughout the policy’s duration, and flexible premiums, where the policyholder has the option to adjust premium payments based on their financial circumstances and policy needs.

Principal

 Principal refers to the initial amount of money invested or contributed by the policyholder towards an insurance policy, annuity, or investment product. It represents the original capital or funds used to establish the policy or contract and may be subject to growth, interest accrual, or investment returns over time, depending on the terms and conditions of the financial product.

Prospectus

A prospectus is a legal document provided by insurance companies or financial institutions to potential investors or policyholders that contains detailed information about an investment or insurance product, including its objectives, risks, fees, performance history, and terms and conditions. It serves as a comprehensive disclosure document designed to help investors make informed decisions and understand the features and risks associated with the product before investing or purchasing.

---

 

 

 

Q

Qualified Annuity

 A qualified annuity is an annuity contract purchased with funds from a tax-advantaged retirement account, such as an Individual Retirement Account (IRA) or 401(k) plan. Contributions to qualified annuities are made with pre-tax dollars, and investment earnings grow tax-deferred until withdrawn, typically during retirement. Qualified annuities offer a way to supplement retirement income while enjoying tax benefits and may be subject to IRS regulations and distribution requirements.

---

 

 

R

Rainbow Crediting Method

 The rainbow crediting method is a strategy used in indexed universal life insurance policies to calculate interest credits based on the performance of multiple underlying market indices. Unlike traditional indexing methods that rely on a single index, the rainbow method diversifies risk by incorporating the performance of several indices, offering policyholders the potential for more stable returns and reduced volatility.

Recapture Charge

 A recapture charge is a fee imposed by the insurance company when policyholders surrender or withdraw funds from an annuity contract before the end of the surrender charge period. It is designed to recoup expenses or commissions paid to agents or brokers at the time of policy issuance and may vary based on the length of time the policy has been in force and the amount withdrawn.

Reduced Paid-Up (RPU) Insurance

Reduced paid-up (RPU) insurance is a non-forfeiture option available in whole life insurance policies that allows policyholders to stop paying premiums while maintaining a reduced death benefit for the remainder of the policy’s duration. With RPU insurance, the policy’s cash value is used to purchase a fully paid-up policy with a lower face amount, providing continued coverage without the need for additional premium payments.

Registered Indexed Annuity

 A registered indexed annuity is an annuity contract registered with and regulated by the Securities and Exchange Commission (SEC) and sold by licensed insurance agents or brokers. It offers a combination of fixed and indexed interest crediting options, allowing policyholders to participate in market-linked gains while providing downside protection against market losses. Registered indexed annuities offer tax-deferred growth and may be subject to SEC oversight and investor protection regulations.

Renewal Rates

Renewal rates refer to the premiums charged by the insurance company for policy renewal or continuation beyond the initial policy term. In the context of life insurance, renewal rates may increase as policyholders age or experience changes in health status, reflecting the increased risk of mortality associated with older age groups. Policyholders should review renewal rates carefully to ensure affordability and continuity of coverage.

Required Minimum Distribution (RMD)

Required minimum distribution (RMD) is the minimum amount of money that retirement account owners, such as IRA or 401(k) plan holders, must withdraw from their accounts each year after reaching a certain age, typically age 72 (or age 70½ for individuals born before July 1, 1949), as mandated by the Internal Revenue Service (IRS). Failure to take RMDs may result in penalties or tax consequences.

Return-Of-Premium (ROP) Option

The return-of-premium (ROP) option is a feature available in certain life insurance policies that allows policyholders to receive a refund of a portion of their paid premiums if they outlive the policy’s duration or reach a specified age without triggering the death benefit. ROP options provide policyholders with a form of savings or investment return and may be offered as a rider or endorsement to the base policy.

Rider (A.K.A. Endorsement)

A rider, also known as an endorsement, is an optional add-on or amendment to an insurance policy that modifies or expands the coverage, benefits, or terms of the base policy to better meet the policyholder’s needs or preferences. Riders may include additional benefits, such as waiver of premium, accelerated death benefits, or long-term care coverage, and are typically available for an additional premium.

Risk Averse

 Risk averse refers to an individual’s preference or tendency to avoid or minimize exposure to risk and uncertainty when making financial decisions. Risk-averse individuals prioritize capital preservation and seek investment options or insurance products that offer stability, predictability, and downside protection, even if it means accepting lower returns or sacrificing potential gains.

Rolling Surrender Charge

A rolling surrender charge is a type of surrender charge structure in annuities or life insurance policies that gradually decreases over time based on the length of time the policy has been in force. Unlike front-loaded surrender charges, which are assessed upfront and decrease linearly, rolling surrender charges decrease incrementally each year, allowing policyholders to access their cash values more gradually without incurring excessive fees.

Rolling Target Premiums

Rolling target premiums are flexible premium payment options available in certain life insurance policies, such as universal life insurance or indexed universal life insurance, that allow policyholders to adjust premium amounts based on changes in financial circumstances, investment performance, or policy needs. Rolling target premiums provide policyholders with flexibility and control over their premium payments, allowing them to adapt to changing financial situations.

Rollover

 A rollover is the transfer of funds or assets from one retirement account or investment vehicle to another without incurring taxes or penalties, typically done to maintain tax-deferred status and preserve retirement savings. Common rollovers include moving funds from one employer-sponsored retirement plan to another, such as from a 401(k) to an IRA, or consolidating multiple retirement accounts into a single account.

Rollup

Rollup refers to the accumulation or compounding of interest or investment gains credited to the cash value of an annuity or life insurance policy over time, typically during the accumulation phase. Rollup features offer policyholders the potential for accelerated growth of their account values by reinvesting earnings or interest credits, often at a predetermined rate or percentage specified in the policy contract.

Rollup Period

The rollup period is the duration during which interest credits or investment gains are accumulated and credited to the cash value of an annuity or life insurance policy, typically during the accumulation phase. It represents the time frame over which rollup features operate to enhance the growth of policyholder’s account values, providing a specified period of accelerated growth potential before annuitization or payout begins.

Rollup Period Reset

 Rollup period reset is a feature in annuities or life insurance policies that allows the rollup period to be reset or extended under certain conditions, such as reaching a specified anniversary date, making additional premium payments, or exercising a contract option. Rollup period reset provisions provide policyholders with flexibility and control over the timing and duration of interest crediting and growth accumulation.

Rule Of 72:

The rule of 72 is a mathematical formula used to estimate the time it takes for an investment to double in value based on a fixed annual rate of return. According to the rule, dividing 72 by the annual rate of return yields the approximate number of years required for the investment to double. The rule of 72 is a simple tool for assessing the growth potential of investments and understanding the impact of compound interest over time.

Russell 2000 Index

The Russell 2000 Index is a benchmark index that tracks the performance of approximately 2,000 small-cap stocks in the United States, representing a diverse range of industries and sectors. It is widely used by investors and financial professionals as a measure of small-cap stock market performance and serves as the basis for various financial products, including mutual funds, exchange-traded funds (ETFs), and indexed annuities. The Russell 2000 Index provides insights into the performance of small-cap companies and their contribution to overall market trends and dynamics.

---

 

S

Savings Bond

 A savings bond is a type of government-issued debt security designed to help finance government spending and projects while providing a safe investment option for individuals. Savings bonds are typically issued by national governments and offer a fixed interest rate and maturity date. They are considered low-risk investments and are often used for long-term savings goals, such as education expenses or retirement planning.

Second-To-Die Insurance

Second-to-die insurance, also known as survivorship life insurance, is a type of life insurance policy that covers two individuals, typically spouses, under a single policy. The death benefit is paid out only after both insured individuals have passed away. Second-to-die insurance is commonly used as a wealth transfer or estate planning tool to provide liquidity to cover estate taxes or other financial obligations upon the death of the second insured individual.

Securities and Exchange Commission (SEC)

 The Securities and Exchange Commission (SEC) is a federal regulatory agency responsible for enforcing securities laws and regulating the securities industry in the United States. The SEC’s mission is to protect investors, maintain fair and orderly markets, and facilitate capital formation. It oversees and regulates securities exchanges, securities brokers and dealers, investment advisers, and mutual funds, among other entities operating in the securities markets.

Separate Account

 A separate account is a segregated investment account maintained by an insurance company to manage the assets and investments associated with variable life insurance or variable annuity policies. Separate accounts offer policyholders the opportunity to invest in a variety of underlying investment options, such as mutual funds or exchange-traded funds (ETFs), and potentially achieve higher returns based on the performance of these investments.

Simple Interest

 Simple interest is a method of calculating interest on a principal amount or investment, where interest is only calculated on the initial principal balance without considering any additional contributions or interest earned over time. Simple interest is typically calculated as a percentage of the principal amount and is paid or accrued at regular intervals, such as annually, semi-annually, or monthly.

Single Premium Deferred Annuity (SPDA)

 A single premium deferred annuity (SPDA) is a type of annuity contract where the policyholder makes a lump-sum payment or premium upfront and defers the receipt of income payments until a later date, typically during retirement. SPDAs offer tax-deferred growth on the invested premium and may provide a guaranteed minimum interest rate or a fixed rate of return for a specified period.

Solvency

 Solvency refers to the financial condition or ability of an individual, institution, or company to meet its financial obligations and liabilities as they become due. For insurance companies, solvency is a critical measure of financial health and stability, indicating the insurer’s capacity to pay policyholder claims and fulfill contractual obligations over the long term. Regulatory authorities monitor insurers’ solvency to ensure policyholder protection and market stability.

S&P 500 Composite Index (S&P 500)

The S&P 500 Composite Index, often referred to simply as the S&P 500, is a market-capitalization-weighted index that tracks the performance of 500 large-cap publicly traded companies listed on stock exchanges in the United States. The S&P 500 is widely regarded as a benchmark for the overall performance of the U.S. equity market and is used by investors and financial professionals as a gauge of market trends and sentiment.

S&P 500 Daily Risk Control 10% Total Return

The S&P 500 Daily Risk Control 10% Total Return is a financial index designed to provide exposure to the performance of the S&P 500 Index while incorporating risk control measures to limit downside volatility. The index aims to deliver a total return equivalent to the performance of the S&P 500 Index, subject to a maximum daily loss of 10%, through the use of dynamic risk management techniques and strategies.

S&P 500 Daily Risk Control 5% Total Return

The S&P 500 Daily Risk Control 5% Total Return is a financial index that seeks to replicate the performance of the S&P 500 Index while limiting downside risk to a maximum daily loss of 5%. The index employs risk control mechanisms to manage volatility and provide investors with exposure to U.S. equity markets while seeking to minimize potential losses during periods of market downturns.

S&P 500 Global Broad Market Index (BMI)

 The S&P 500 Global Broad Market Index (BMI) is a benchmark index that measures the performance of global equity markets, including both developed and emerging market regions, with broad market representation. The index covers a wide range of asset classes and geographic regions, providing investors with a comprehensive view of global equity market trends and dynamics.

S&P GSCI

 The S&P GSCI, formerly known as the Goldman Sachs Commodity Index, is a benchmark index that measures the performance of a diversified basket of commodity futures contracts across various sectors, including energy, agriculture, metals, and livestock. The index serves as a gauge of commodity market trends and is widely used by investors and commodity traders to track the performance of the global commodity markets.

S&P Midcap 400 Index

 The S&P Midcap 400 Index is a market-capitalization-weighted index that tracks the performance of 400 mid-cap companies listed on stock exchanges in the United States. The index provides investors with exposure to mid-sized companies, which typically have market capitalizations between those of large-cap and small-cap companies. The S&P Midcap 400 Index is commonly used as a benchmark for mid-cap stock market performance.

Specimen Contract

 A specimen contract, also known as a sample contract or policy illustration, is a document provided by an insurance company that outlines the key terms, features, and benefits of an insurance policy. It serves as an illustrative example to help policyholders understand how the policy works, including premium payments, coverage limits, policy duration, and potential benefits. Specimen contracts are typically provided to prospective policyholders during the insurance application process to aid in decision-making.

 

Spousal Continuation

 Spousal continuation is a feature available in certain life insurance policies that allows the surviving spouse to continue the coverage provided under the deceased spouse’s policy without the need for requalification or medical underwriting. This feature ensures that the surviving spouse maintains access to life insurance protection following the death of their partner, helping to provide financial security and stability during a challenging time.

 

Spread Rate (a.k.a. Asset Fee, Margin)

 The spread rate, also known as the asset fee or margin, is a fee charged by insurance companies or financial institutions to manage and administer certain types of investment products, such as indexed annuities or variable annuities. The spread rate represents the difference between the interest credited to the annuity’s underlying investments and the rate credited to the policyholder’s account, allowing the insurer to cover expenses and generate profits from the annuity contract.

 

Stacking Rollup

 Stacking rollup is a feature available in some annuity contracts that allows policyholders to accumulate additional bonuses or benefits over time by “stacking” or combining multiple premium payments or contributions. With stacking rollup, each new premium payment is treated as a separate contribution, potentially earning additional bonuses or enhancing the policy’s value based on the terms of the annuity contract.

 

Standard And Poor’s Rating (S&P Rating)

The Standard & Poor’s (S&P) rating is a credit rating assigned by the financial services company Standard & Poor’s to assess the creditworthiness and financial stability of a company, government entity, or financial instrument. S&P ratings are widely used by investors, lenders, and financial institutions to evaluate credit risk and make informed investment decisions. Ratings typically range from AAA (highest credit quality) to D (default), with additional modifiers indicating positive or negative outlooks.

 

Standard Policy Form State Approval

 Standard policy form state approval refers to the process by which insurance companies obtain regulatory approval from state insurance departments for the issuance of insurance policies using standard policy forms. State insurance departments review insurance policy forms to ensure compliance with state laws, regulations, and consumer protection standards before granting approval for use within the state. Standard policy form approval helps ensure consistency, transparency, and consumer protection in the insurance marketplace.

 

State Guaranty Funds

 State guaranty funds are safety nets established by state governments to protect policyholders in the event of insurer insolvency or financial failure. These funds provide a source of funds to pay policyholder claims and benefits when an insurance company becomes insolvent and is unable to fulfill its obligations. State guaranty funds typically cover certain types of insurance policies, such as life insurance, annuities, health insurance, and property and casualty insurance, up to specified limits set by state law.

 

Structured Premium

A structured premium refers to a premium payment schedule or arrangement for an insurance policy or annuity contract that is designed to meet the policyholder’s specific financial needs and objectives. Unlike traditional fixed premiums, which remain constant over time, structured premiums may vary in frequency, amount, or timing to accommodate changes in the policyholder’s income, expenses, or financial goals. Structured premium options provide flexibility and customization in premium payment planning, allowing policyholders to adapt their coverage to their evolving financial circumstances.

 

Sub Account

 A sub-account, also known as a separate account or investment option, is a distinct investment portfolio offered within a variable annuity or variable life insurance contract. Sub-accounts typically represent underlying investments, such as mutual funds, exchange-traded funds (ETFs), or separately managed accounts, in which policyholders can allocate their premium payments to pursue investment growth. Sub-accounts offer flexibility and diversification in investment choices, allowing policyholders to tailor their investment strategy based on their risk tolerance, investment objectives, and market outlook.

 

Suitability Review

A suitability review is a process conducted by insurance agents, financial advisors, or investment professionals to assess whether a particular insurance product or financial service is suitable for a client based on their financial situation, investment objectives, risk tolerance, and other relevant factors. Suitability reviews help ensure that recommendations and sales of insurance policies or financial products align with clients’ needs and interests and comply with regulatory requirements, such as those outlined by the Financial Industry Regulatory Authority (FINRA) and state insurance departments.

 

Surrender Charge

 A surrender charge, also known as a surrender fee or withdrawal charge, is a fee imposed by insurance companies or financial institutions when policyholders or annuity contract holders surrender or withdraw funds from their policies or contracts before a specified surrender period has elapsed. Surrender charges are designed to discourage early withdrawals and compensate the insurer for administrative costs, sales commissions, and other expenses associated with the policy or contract. Surrender charges typically decrease over time and may be waived under certain circumstances, such as death or disability of the policyholder.

 

Surrender Charge Waiver

 A surrender charge waiver is a provision in an insurance policy or annuity contract that exempts policyholders or contract holders from paying surrender charges under certain specified conditions or circumstances. Surrender charge waivers may be offered as optional riders or benefits or included as standard features in certain policies or contracts. Common scenarios in which surrender charge waivers may apply include death, disability, terminal illness, or long-term care needs of the policyholder or contract holder. Surrender charge waivers provide flexibility and financial protection to policyholders facing unexpected life events or emergencies.

 

Sweep

In the context of banking and investment accounts, a sweep refers to an automated transfer of funds between different accounts or investment vehicles to optimize liquidity, maximize returns, or manage risk. Sweeps are typically conducted overnight or at regular intervals to transfer excess cash balances from one account, such as a checking or brokerage account, to another account, such as a money market fund, savings account, or short-term investment option. Sweeping funds allows financial institutions and investors to efficiently allocate cash resources and maintain optimal cash levels based on prevailing market conditions, interest rates, and investment objectives.

---

 

 

T

Target Premium

The target premium is the desired or recommended premium amount specified by an insurance company or financial advisor for an insurance policy or annuity contract based on the policyholder’s coverage needs, financial goals, and risk tolerance. The target premium serves as a guideline for policyholders to ensure that their insurance coverage adequately protects against potential risks and provides sufficient benefits or returns. Adjustments to the target premium may be made over time to accommodate changes in the policyholder’s financial circumstances or coverage requirements.

 

Tax-Deferral

 Tax deferral refers to the postponement of taxation on investment earnings, capital gains, or income generated within certain types of investment accounts or financial products until a later date, typically upon withdrawal or distribution. Tax-deferred accounts, such as qualified retirement plans, annuities, and certain life insurance policies, allow investors to accumulate funds and compound returns over time without incurring immediate tax liabilities, thereby maximizing investment growth potential. Tax deferral can help investors minimize current tax obligations, optimize investment returns, and potentially reduce their overall tax burden in retirement or during other specified periods.

 

Tax-Sheltered Annuity (TSA)

 A tax-sheltered annuity (TSA), also known as a 403(b) plan or tax-deferred annuity (TDA), is a retirement savings plan available to employees of certain nonprofit organizations, educational institutions, and government entities. A TSA allows employees to make pre-tax contributions to their retirement accounts, reducing their current taxable income and deferring taxes on investment earnings until withdrawal. Contributions to a TSA are typically invested in annuity contracts offered by insurance companies, providing participants with a tax-advantaged vehicle to save for retirement and potentially generate income in the future.

 

TEFRA

 TEFRA, which stands for the Tax Equity and Fiscal Responsibility Act of 1982, is a federal tax law enacted to address tax reform and budget deficits. TEFRA introduced various provisions affecting taxation, retirement savings, insurance, and investment strategies, including changes to individual and corporate tax rates, limits on tax deductions, modifications to retirement plan rules, and adjustments to insurance tax policies. TEFRA aimed to promote tax fairness, fiscal responsibility, and economic growth by addressing tax loopholes, simplifying tax administration, and enhancing revenue collection.

 

Term Life Insurance

 Term life insurance is a type of life insurance coverage that provides financial protection for a specified period, or term, typically ranging from 10 to 30 years. Term life insurance offers a death benefit payout to the beneficiaries named in the policy if the insured individual passes away during the term of coverage. Unlike permanent life insurance, such as whole life or universal life, term life insurance does not accumulate cash value and is designed primarily to provide affordable and temporary coverage to meet short-term financial needs, such as income replacement, mortgage protection, or debt repayment.

 

Two-Tiered Annuity

 A two-tiered annuity is an annuity contract structure that offers policyholders or annuitants the flexibility to allocate their premium payments or contributions to multiple investment options or sub-accounts within the annuity. Two-tiered annuities typically feature two tiers or segments: a fixed-interest tier and a variable-interest tier. The fixed-interest tier offers a guaranteed interest rate or fixed return, while the variable-interest tier allows for investment in market-driven options, such as mutual funds or indexed accounts. Two-tiered annuities combine the benefits of fixed and variable annuity features, providing policyholders with diversification, flexibility, and potential for growth.

---

 

 

 

U

 

U.S. 10-Year Swap Rate

 The U.S. 10-year swap rate, also known as the 10-year interest rate swap rate, is a benchmark interest rate used in financial markets to assess borrowing costs, evaluate credit risk, and price derivative contracts, such as interest rate swaps and fixed-income securities. The U.S. 10-year swap rate represents the fixed interest rate that counterparties agree to pay or receive in exchange for swapping floating-rate payments based on a specified reference rate, such as the London Interbank Offered Rate (LIBOR), for fixed-rate payments over a 10-year period. The U.S. 10-year swap rate serves as a key indicator of long-term interest rate expectations and market sentiment.

 

U.S. 10-Year Treasury Bond

The U.S. 10-year Treasury bond, often referred to as the 10-year Treasury note or T-note, is a debt security issued by the U.S. Department of the Treasury with a maturity of 10 years. The U.S. 10-year Treasury bond is considered a benchmark for long-term interest rates and serves as a key indicator of investor sentiment, economic outlook, and inflation expectations. Investors and financial institutions use the yield on the 10-year Treasury bond as a reference rate for pricing various financial instruments, including mortgages, corporate bonds, and fixed-income securities. The yield on the U.S. 10-year Treasury bond is influenced by factors such as monetary policy, economic indicators, and market demand for safe-haven assets.

 

Underwriting

 Underwriting is the process conducted by insurance companies to assess and evaluate the risk associated with insuring a particular individual, property, or asset and determine the appropriate premium, coverage, or terms of insurance. During underwriting, insurers collect and analyze information such as medical history, age, occupation, lifestyle habits, and financial status to evaluate the likelihood of a claim and calculate the potential cost of coverage. Underwriting helps insurers make informed decisions about accepting or rejecting applications for insurance, setting premiums, and managing risk within their insurance portfolios.

 

Universal Life

Universal life insurance is a type of permanent life insurance that offers flexible premiums, adjustable death benefits, and a cash value component that accumulates over time. Universal life insurance policies allow policyholders to customize their coverage and premium payments based on their changing financial needs, with the ability to increase or decrease coverage amounts and adjust premium levels within certain limits. The cash value in a universal life policy earns interest at a rate set by the insurance company and can be used to pay premiums, supplement retirement income, or access funds through policy loans or withdrawals. Universal life insurance provides lifelong coverage and offers policyholders the opportunity to build cash value while maintaining control and flexibility over their insurance coverage.

---

 

 

 

V

Variable Annuity

 A variable annuity is a type of annuity contract that offers policyholders the opportunity to invest their premium payments in a variety of investment options, such as mutual funds or separate accounts, allowing for potential growth of the invested funds. The value of a variable annuity fluctuates based on the performance of the underlying investments, and policyholders assume investment risk. Variable annuities provide the potential for higher returns compared to fixed annuities but also entail greater market risk. Variable annuities may offer optional features such as death benefits, guaranteed minimum income benefits, and withdrawal privileges, providing policyholders with flexibility and potential benefits beyond traditional investment vehicles.

 

Variable Life

 Variable life insurance is a form of permanent life insurance that combines a death benefit with a cash value component that can be invested in various investment options, such as mutual funds or separate accounts. Unlike traditional whole life insurance, the cash value in a variable life policy is subject to market fluctuations, and policyholders assume investment risk. Variable life insurance offers policyholders the opportunity to accumulate cash value and potentially achieve higher returns compared to fixed-interest life insurance products. Policyholders have the flexibility to allocate their premium payments among different investment options and may adjust their investment strategy over time to align with their financial goals and risk tolerance.

 

Variable Loan Interest (VLI)

 Variable loan interest (VLI) refers to the interest rate charged on policy loans obtained from a variable life insurance policy’s cash value. Unlike traditional bank loans, which typically have fixed interest rates, VLI fluctuates based on market conditions and may vary over time. Policyholders who borrow against the cash value of their variable life insurance policies may be subject to VLI rates that reflect changes in prevailing interest rates or investment performance. VLI rates are determined by the insurance company and may be based on benchmark rates or other financial indicators. Policyholders should carefully consider the impact of VLI on the cost of borrowing and the overall performance of their variable life insurance policies.

 

Variable Universal Life

 Variable universal life (VUL) insurance is a type of permanent life insurance that combines the flexibility of universal life insurance with the investment options of variable life insurance. VUL policies offer policyholders the ability to adjust their premium payments, death benefits, and investment allocations over time to accommodate changing financial needs and investment objectives. The cash value component of a VUL policy is invested in various investment options, such as mutual funds or separate accounts, allowing for potential growth of the cash value. However, the cash value is subject to market fluctuations, and policyholders assume investment risk. VUL policies may offer optional features such as death benefits, guaranteed minimum income benefits, and flexible premium payment schedules, providing policyholders with a range of benefits and customization options.

 

Variation State Approval

Variation state approval refers to the process by which insurance products, such as annuities or life insurance policies, are reviewed and approved for sale by state insurance regulators in different states within the United States. Insurance companies must obtain approval from each state’s insurance department to offer their products to residents of that state, ensuring compliance with state-specific insurance laws, regulations, and consumer protection requirements. Variation state approval may involve submitting product filings, actuarial reports, marketing materials, and other documentation to demonstrate that the insurance product meets the regulatory standards and is suitable for sale in the state. Once approved, insurance companies can market and sell their products to consumers in the approved states, subject to ongoing regulatory oversight and compliance.

 

Vesting Schedule

 A vesting schedule is a predetermined timeline or schedule that specifies when policyholders or plan participants gain ownership rights or entitlement to employer-provided benefits, such as retirement plan contributions, employer matching contributions, or stock options. Vesting schedules are commonly used in retirement plans, employee stock option plans, and deferred compensation arrangements to incentivize employee retention and reward long-term service. Vesting schedules typically stipulate a gradual or incremental vesting of benefits over a specified period, with participants becoming fully vested after completing the required service or tenure. Vesting schedules may vary depending on the type of benefit, employer policy, and regulatory requirements, and may include cliff vesting, graded vesting, or immediate vesting provisions.

---

 

 

 

W

Wealth Transfer

 Wealth transfer refers to the process of passing assets, property, or wealth from one individual or entity to another, typically through inheritance, gifts, trusts, or estate planning strategies. Wealth transfer may occur during an individual’s lifetime or after their death and is often facilitated by legal instruments such as wills, trusts, and beneficiary designations. The goal of wealth transfer is to distribute assets according to the wishes of the transferor while minimizing taxes, probate costs, and other administrative expenses. Wealth transfer strategies may include establishing trusts, making gifts, implementing estate planning techniques, and utilizing tax-efficient vehicles to preserve and transfer wealth to future generations.

 

Weighting Multiple Index Crediting Method

 The weighting multiple index crediting method is a strategy used in indexed universal life (IUL) insurance policies to calculate the interest credited to the policy’s cash value based on the performance of multiple stock market indices. With this method, each index is assigned a specific weight or allocation percentage, and the overall interest credited to the policy is determined by the combined performance of the selected indices according to their respective weights. The weighting multiple index crediting method allows policyholders to diversify their investment exposure across multiple indices and potentially enhance the overall performance of their IUL policies. By spreading the risk among different indices, policyholders can mitigate the impact of underperformance in any single index and capture the growth potential of various market sectors.

 

Whole Life

Whole life insurance is a type of permanent life insurance that provides coverage for the entire lifetime of the insured, as long as premiums are paid as scheduled. Whole life insurance offers a death benefit to beneficiaries upon the death of the insured, along with a cash value component that accumulates over time. Unlike term life insurance, which provides coverage for a specific period, whole life insurance does not expire and remains in force for the duration of the insured’s life. The cash value in a whole life insurance policy grows tax-deferred and can be accessed by the policyholder through withdrawals or policy loans. Whole life insurance policies typically offer fixed premiums, guaranteed death benefits, and cash value growth that is guaranteed by the insurance company, providing policyholders with financial protection and investment security.

 

 

 

 

—————————————————————————————————————————————————————————————

 

Related Content | Learn More about IULs:

What is Indexed Universal Life Insurance?

Indexed Universal Life Insurance (IUL) is a type of permanent life insurance that lasts your whole life and has two main parts: a death benefit that pays out when you pass away, and a cash value component that can grow over time. What sets IUL apart from other types of life insurance is how the cash value grows. Instead of just earning a set interest rate, the cash value in an IUL policy can also increase based on the performance of an underlying stock market index, like the S&P 500.

 

How The IUL Works:

When the index goes up, your cash value goes up too, but only up to a certain limit, called a “cap.” For example, if your policy has a cap of 7% and the index goes up by 8%, your cash value would only increase by 7%. However, if the index goes down, your cash value won’t lose any value – it stays the same, protecting your money from market losses.

The cash value in your IUL policy grows tax-deferred, meaning you don’t pay taxes on it until you withdraw the money. This allows your cash value to grow faster over time. Plus, because IUL is permanent life insurance, your loved ones are protected financially with a tax-free death benefit when you pass away, as long as you keep paying the premiums.

 

What are IUL insurance riders?

IUL policies also offer various optional add-ons called riders that can enhance your coverage. here is a list of the best:

• Adjustable Term Insurance Rider: Adds a term life insurance component to your policy for extra coverage.
• Additional Insured Rider: Extends coverage to your spouse or children.
• Long-Term Care Rider: Provides income to cover long-term care expenses like nursing home or home care.
• Chronic Illness Rider: Pays out a portion of the death benefit if you’re diagnosed with a chronic illness.
• Accelerated Benefit Rider: Provides a portion of the death benefit early if you’re diagnosed with a terminal illness.

Our team of IUL experts can help you decide if an indexed universal life insurance policy is right for your financial needs.