Glossary
Plain language definitions for the terms that come up most often in insurance, annuity, and retirement conversations.
Accelerated Death Benefit
A life insurance provision that may allow a portion of the death benefit to be paid to the insured while still living, typically after a qualifying terminal or chronic illness. Terms and eligibility vary by contract and by state.
Accumulation Value
The value credited to an annuity contract before any surrender charges, fees, or adjustments are applied. It is not necessarily the amount available if the contract is surrendered.
Annuitant
The person whose life expectancy is used to determine annuity payments. The annuitant may or may not be the same person as the contract owner.
Annuitization
Converting an annuity contract into a stream of periodic payments. Once elected, this decision is often irreversible, so the payout option chosen matters a great deal.
Annuity
A contract with an insurance company. In exchange for premium, the company agrees to make payments either immediately or at a future date, under the terms of the contract.
Beneficiary
The person or entity named in a contract to receive proceeds upon the death of the insured or owner. The designation on file generally controls, regardless of what a will says.
Cap Rate
In a fixed indexed annuity, the maximum interest rate that may be credited for a given period, regardless of how much the underlying index gains. Caps can change over time within contract limits.
Cash Surrender Value
The amount available to the owner if a policy or contract is surrendered, after surrender charges and any outstanding loans are deducted.
Cash Value
The savings component that builds within certain permanent life insurance policies. Access to it may be available through loans or withdrawals, which reduce the death benefit.
Community Property
A system of property ownership between spouses used in Texas and several other states, under which most property acquired during a marriage is owned jointly.
Contingent Beneficiary
The person or entity who receives proceeds if the primary beneficiary is not living at the time of the claim. Leaving this blank is a common oversight.
Contract Owner
The person who holds the rights under an insurance or annuity contract, including the right to name beneficiaries, make withdrawals, and surrender the contract.
Convertibility
A term life insurance provision allowing the policy to be exchanged for a permanent policy without new evidence of insurability, within a stated window.
Cost of Living Adjustment
A periodic increase applied to certain benefits, such as Social Security, intended to reflect changes in a measure of inflation.
Death Benefit
The amount payable to beneficiaries upon the death of the insured, subject to the terms of the policy and any outstanding loans or adjustments.
Deferred Annuity
An annuity where payments begin at a future date, allowing the contract value to accumulate in the meantime.
Dependent Administration
A form of estate administration requiring ongoing court approval for many actions, generally slower and more costly than independent administration.
Durable Power of Attorney
A document granting someone authority to act on your behalf that remains effective if you become incapacitated.
Elimination Period
The waiting period after a qualifying event before benefits begin under certain policies, such as disability or long term care coverage.
Estate
Everything a person owns at death, including property, accounts, and personal belongings, less what is owed.
Executor
The person named in a will to carry out its instructions and settle the estate.
Face Amount
The stated death benefit of a life insurance policy at issue, before any adjustments, loans, or riders.
Fixed Annuity
An annuity that credits interest at a rate set by the insurance company, subject to a contractual minimum.
Fixed Indexed Annuity
An insurance contract that credits interest based in part on the performance of an external index, subject to caps, participation rates, spreads, and other contract limits. It is not a security and it does not involve direct investment in an index.
Free Look Period
A window after a policy is issued during which the owner may cancel and receive a refund as specified by the contract and state law.
Full Retirement Age
The age at which a person becomes eligible for unreduced Social Security retirement benefits. It varies depending on year of birth.
Grace Period
The time after a missed premium payment during which coverage remains in force before the policy lapses.
Guaranteed Lifetime Withdrawal Benefit
An optional annuity feature, often carrying an additional charge, designed to provide withdrawals for life subject to the terms of the rider.
Guaranteed Minimum Interest Rate
The lowest interest rate an insurance company will credit under the terms of a contract, regardless of index or market performance.
Immediate Annuity
An annuity where payments begin shortly after the contract is purchased, typically within a year.
Income Rider
An optional annuity provision, typically for an additional cost, designed to provide a stream of income under stated conditions.
Independent Executor
An executor granted authority under a Texas will to administer an estate with limited court supervision after the initial hearing.
Indexed Universal Life
A permanent life insurance policy where cash value crediting is linked in part to an index, subject to caps, floors, and policy charges.
Insurability
Whether a person qualifies for coverage, and on what terms, based on health, occupation, and other underwriting factors.
Intestate
Dying without a valid will. State law then determines how the estate is distributed.
Irrevocable Beneficiary
A beneficiary whose designation cannot be changed without their consent.
Joint and Survivor Annuity
A payout option that continues payments to a surviving spouse or second annuitant after the first annuitant dies, usually at a reduced amount.
Lapse
Termination of a policy for nonpayment of premium after the grace period ends.
Level Term
Term life insurance where the premium and death benefit remain the same for a stated period.
Living Benefit
A policy provision allowing access to some portion of the death benefit while the insured is still living, under stated conditions.
Long Term Care Rider
An optional provision that may allow policy values to be used for qualifying long term care expenses, subject to the terms of the rider.
Medical Power of Attorney
A document naming someone to make health care decisions on your behalf if you are unable to make them yourself.
Modified Endowment Contract
A life insurance policy that has been funded beyond certain federal limits, changing the tax treatment of distributions.
Mortality and Expense Charge
A fee assessed within certain insurance and annuity contracts to cover insurance risk and administrative costs.
Participation Rate
In an indexed product, the percentage of an index gain used in the interest crediting calculation.
Payable on Death
An account designation directing the balance to a named person at death, generally without passing through probate.
Permanent Life Insurance
Life insurance designed to remain in force for life if the contract requirements are met, and which typically builds cash value.
457 Plan
A deferred compensation retirement plan offered by many state and local government employers, with its own rules on access and timing.
Policy Loan
A loan taken against the cash value of a life insurance policy. Outstanding loans and interest reduce the death benefit.
Premium
The amount paid for an insurance policy or annuity contract.
Probate
The court process for validating a will and administering an estate. Assets with a named beneficiary generally pass outside of it.
Qualified Account
A retirement account receiving specific federal tax treatment, such as a 401(k), 403(b), 457, or IRA.
Required Minimum Distribution
The minimum amount that generally must be withdrawn from certain retirement accounts each year beginning at an age set by federal law.
Rider
An optional provision added to a policy or contract, often for an additional charge, that modifies its terms or adds a feature.
Rollover
Moving funds from one qualified retirement account to another. Rules and timing requirements apply, and mistakes can carry tax consequences.
Spread
In an indexed product, an amount subtracted from the index gain before interest is credited.
Surrender Charge
A fee applied when an annuity or cash value policy is surrendered or when withdrawals exceed the free amount, typically declining over a stated schedule.
Surrender Period
The number of years during which surrender charges apply. Understanding the length of this period before purchase is essential.
Term Life Insurance
Life insurance providing coverage for a stated period. It generally does not build cash value and expires at the end of the term.
Transfer on Death
A designation directing certain assets to a named person at death, generally without passing through probate.
Underwriting
The process an insurance company uses to evaluate risk and decide whether to issue coverage and on what terms.
Universal Life Insurance
Permanent life insurance with flexible premiums and an adjustable death benefit, subject to policy charges and the terms of the contract.
Vesting
The point at which an employee gains full ownership of employer contributions to a retirement plan.
Waiver of Premium
A provision that may keep coverage in force without premium payments if the insured becomes disabled, subject to the terms of the rider.
Whole Life Insurance
Permanent life insurance with a level premium and a guaranteed death benefit and cash value, as stated in the contract.
Will
A legal document directing how property is distributed at death and naming a guardian for minor children.
403(b) Plan
A supplemental retirement savings plan offered by public schools and certain tax exempt organizations.
These definitions are general explanations provided for educational purposes. They are simplified, they are not contract language, and they are not legal or tax advice. The terms of any specific policy or contract control, and those terms vary by product, by carrier, and by state.
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