R – T
Rated Policy
A policy issued at a higher premium rate to offset the risk of insuring an individual whose health (or some other risk factor) disqualifies the individual for Standard or Select rates.
Rebating
The granting of any form of inducement, favor, kickback, or advantage to the purchaser of a policy which is not available under the standard terms of the policy. Rebating is a penal offense in some states, whereby both the agent and the person accepting the rebate can be punished. The amount of the rebate is taxable to the recipient and the agent’s license is subject to revocation.
Renew
To continue the policy for another period of time. Permanent coverage is generally renewable annually for life. Term insurance coverage may or may not be renewable; if renewable, the renewal period may be much shorter than life.
Replacement
The act of terminating coverage with one insurer for coverage with another. This practice is regulated by most states because it is seldom in the insured’s best interest to make such a switch.
Restrictions
Factors affecting what actions can be taken on a policy, such as ownership restriction because of a divorce or tax levy.
Return on Equity
Net operating gain as a percentage of prior year capital and surplus. This profitability test reflects the return on capital and surplus from insurance operations and investments and has been traditionally used with stock companies to indicate return on stockholder’s investment. Comparisons cannot be made between stock and mutual companies since the net operating gain is after dividends are paid to policy owners.
Revocable Beneficiary
A beneficiary whose rights are subject to the rights of the policy owner who may revoke or change the beneficiary designation and exercise any ownership rights under the policy without the beneficiary’s consent.
Rider
A special policy provision or group of provisions which may be added to a policy to expand or limit the benefits otherwise payable.
Risk
In insurance, it is the probability of morbidity or mortality. It also pertains to uncertainty of gains or losses regarding investment performance on the underlying funds of a variable product.
Risk Classification
An underwriting process used to determine the appropriate price category of the proposed insured, according to risk factors associated with that person’s health condition, lifestyle, etc.
Securities Broker
In securities, a broker is a person who acts as an intermediary between a buyer and seller, usually charging a commission. A broker who specializes in stocks, bonds, commodities or options, acts as agent and must be registered with the exchange where the securities are traded.
Section 401(k) Plan
Internal Revenue Code 401(k) is an employer-sponsored, salary-reduction retirement savings program. The employee defers a percentage of current salary on a pre-tax basis and the employer often matches some portion of that amount. There is a cap on the annual contribution and a 10% penalty is levied on monies withdrawn before age 59 1/2. The accumulating funds can be borrowed by the employee and repaid with interest.
Section 403(b) Plan
Internal Revenue Code 403(b) is a retirement program offered to employees of tax-exempt organizations, such as public schools. Subject to certain limitations, the organization pays annuity premiums on behalf of their employees and provides employees with a tax advantage by excluding the amount of the payments from their gross incomes.
Section 408(k) Plan
Internal Revenue Code 408(k) is an individual employee retirement account, funded by either an employer or a self-employed person. T
Securities and Exchange Commission (SEC)
A federal agency created by the Securities Exchange Act of 1934 to administer the act and to help protect the interests of investors.
Single Premium
Refers to the one-time payment required to cover the entire cost of a life insurance or annuity contract.
Single Premium Life Insurance
An insurance plan that requires only one premium and is guaranteed to remain paid-up throughout the insured’s lifetime. These contracts are generally used as cash accumulators. Under current tax law, new single premium contracts are classified as modified endowment contracts. It is not a true single premium life product when a single payment sales illustration does not come with a guarantee that future payments will never be required.
Stock
A certificate of ownership of a corporation representing a share of its capital and surplus.
Stock Company
An insurance company formed and capitalized through the sale of shares of stock. Those purchasing the stock are owners and share in the company’s earnings. Common stockholders vote on the company’s board of directors, on matters involving company policy, and may receive a distribution of earnings through stock dividends declared by the company.
Suicide Clause
Most companies have a two year suicide clause, except where state law mandates otherwise.
Surrender
Cancellation of the policy, which involves returning the contract to the issuing company.
Tax Deferral
Postponing the payment of income taxes until some point in the future, often at retirement. Generally, the cash value growth inside life insurance is eligible for deferral, unless the amount of cash received through surrender exceeds the policy’s tax basis. Any additional surrenders beyond the basis must be reported as taxable income. Taxes may be deferred on modified endowment and annuity contracts until the owner takes possession of the cash benefits.
Tax-Deferred Annuity
Annuities available for purchase by employees of certain non-profit and public education institutions as described in IRC §501(c)(3). Money used to purchase the annuity is not taxable as income until annuity payments begin, usually at retirement. Also known as a Tax-Sheltered Annuity (TSA).
Tax-Qualified Plan
A retirement plan arrangement that allows an employee and/or employer to make contributions, often on a pre-tax basis, to an annuity. Certain requirements and contribution limits must be met to qualify. Examples include Pension/ Profit-Sharing, 401(k), Simplified Employee Pension, Tax-Deferred Annuity, and Individual Retirement Annuity plans.
Term Insurance
Insurance which provides a death benefit only. Premiums increase each year, or, in the case of level premium renewable term, at the end of each renewal period. Level premium decreasing term has a level premium, but the insurance benefit decreases on each policy anniversary. Since term insurance can become quite expensive at older ages, it is often used to cover protection needs of a shorter duration or to cover a specific need such as an outstanding loan balance.
Term Rider
A rider attached to a basic policy to provide additional coverage in the form of term insurance. Dividends earned on the basic plan may be designated to replace the term insurance with permanent paid-up additions.
Testament
A will.
Testamentary Trust
A trust established at death under the decedent’s will.
Testate
Died leaving a will.
Time Value of Money
This refers to the effect of time and compounding interest on a sum of money which substantiates the fact that a dollar invested today is worth more than a dollar received a year from now.
Total Cash Value
On life insurance sales illustrations, the combination of the guaranteed and non-guaranteed portion of the cash value. The term refers to the cash value after the deduction of any surrender charges.
Traditional Individual Retirement Account (IRA)
A retirement savings plan which allows individuals to contribute toward an account on a tax-deferred basis. The contributions and earnings are taxable as income only when withdrawn or paid out after retirement.
Twisting
The practice of inducing a policy owner to replace a policy by providing inaccurate, incomplete, or misleading information.