Glossary Of Terms

Common Terms Used in The Life Settlement Industry

1099: Form filed with IRS to report individual income.

Absolute Assignment: Re-assignment of beneficiary and owner

Accelerated Death Benefit (ADB): Death benefits paid to a policy owner using strict guidelines dictated by an insurance carrier as an advance, usually restricted to those with less than 12 months left to live

Accidental Death Benefits: Additional benefits paid to policy owner for death by accident only

Account Value: The total amount of cash built up in an insurance policy (the investment portion of the policy) that is available to the policy owner before taking into account any surrender charge (also known as Accumulation Value or Cash Value)

Advisor: Company or individual who provides specialized advice, e.g., tax advisor, legal advisor, financial advisor

Assignment: Transfer of ownership – can be as a gift, for a value, or for nothing.

APS (Attending Physician’s Statement): “see Medical Records” 

Benefits: Funds the insurance company pays to a policy beneficiary upon death of the insured (or insureds if a survivorship policy)

Beneficiary: The individual or company named on a policy to which the insurance company will forward benefits upon death of insured

Bid (Appraisal): Offer to purchase a policy

BOLI: Bank Owned Life Insurance

Broker: Company or individual assembling data on behalf of the policy owner for the purpose of selling a life insurance policy

Care Giver: Company or individual providing health related personal care services

Carrier: Insurance company

Case Worker: Company or individual assembling data on behalf of a policy owner for purpose of selling a life insurance policy (also see Broker)

Cash Surrender Value: The Account Value built up in an insurance policy (the investment portion of the policy) that is available to the policy owner after taking into account the surrender charge (if any)

COLI or Corporate Owned Life Insurance: A policy that a company has taken out on the life of an employee. The policy could be a Key Man Policy (see below) or insure the life of someone at any level of the company. The company is both the owner and beneficiary of a COLI policy. Also known as Janitor’s Insurance.

Confidentiality: The practice and maintenance of absolute anonymity of the insured and all data and information related to the insured to those without express written release or permission of the insured

Contestable or Contestability Period: The time from a life insurance policy issue date in which the insurance company has the legal right to cancel a life insurance policy – usually 2 years but can vary by company and/or product. The insurance company can go back and investigate an applicant’s request for insurance based on information provided on the application. After the contestability period, a policy can only be canceled for lack of payment or fraud.

Contestable Policy: A life insurance policy which has been in-force shorter than the contestable period

Contract: A life insurance policy document that is a binding legal agreement between an policy owner and the life insurance company that describes all of the terms of the life insurance policy that is entered into when a policy is purchased

Death Benefit: Total amount payable to policy beneficiaries upon the death of the insured

Dependent: An individual who is dependent on another individual financially, according to the governing rules set by the IRS

Disability Waiver of Premiums: A life insurance policy rider that stipulates if the insured becomes disabled, premium payments are no longer required to keep the policy in-force

Employer: The company that employs the insured

Escrow: An account, controlled by a disinterested third-party, that is used to hold funds in a life settlement transaction after a sale has been completed, but before the insurance company has acknowledged an ownership and beneficiary change

Escrow Agent: A disinterested third party agent, usually bonded, designated by both parties to direct funds through various stages of the life settlement process

Federal Regulations: Federal government rulings and laws

FEGLI: Federal Employees Group Life Insurance

Face Value: Total amount payable upon death of the insured (or insureds in a second-to-die policy), also know as the Death Benefit

Investor or Funder: Company that purchases a life insurance policy in the secondary market, pays all future premiums, and collects the death benefit as the beneficiary of the policy

Graded Death Benefit: A policy where the full face value will not be paid until graded time has passed, according to policy terms (often 2 to 3 years)

Group Policy: Life insurance that provides protection for a group of persons, usually employees of a company or members of an organization under one master contract

HIPAA: An acronym for the Health Insurance Portability and Accountability Act of 1996 (public law 104-191) that governs the treatment of medical files by companies, among other things

Insured: The individual whose life is covered in a life insurance policy

Irrevocable Beneficiary: A beneficiary in a life insurance policy whose designation cannot be changed without his or her consent.

IRS: Internal Revenue Service

Key Man Policy (or Key Person Policy): A life insurance policy designed to protect a business against financial loss caused by the death of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise (generally, a large policy)

LE: Life expectancy, an estimate of the period of time a person has left to live

Legal Competency: An opinion provided by an insured’s and/or policy owner’s doctor providing medical assurance that the insured and/or policy owner is of sound mind.

License (Provider): A state-issued designation that provides a company the legal right to purchase life and/or viatical settlements in that state – only certain states require Provider licensing (check with the Legal Department if questions arise)

Life Insurance: An asset purchased to provide financial protection should an individual (the insured) die whereby the named beneficiary will be paid a death benefit by the insurance company

LISA or Life Insurance Settlement Association: The most recognized trade association in the life settlement industry.  LISA participates in regulatory and legislative matters in all 50 states, the District of Columbia, Puerto Rico, and Canada.

Life Settlement: A transaction where a lump sum cash payment is made to the owner of a life insurance policy to purchase both the rights of ownership and beneficiary designation

Life Settlement Provider (or Viatical Settlement Provider): Company or individual that purchases or facilitates the purchase of the rights of ownership and beneficiary designation of an insurance policy.  In 29 states and Puerto Rico, a company must be licensed by the state insurance department to be a Life/Viatical Settlement Provider.

Life Threatening Illness: An illness that will cause premature death, e.g. HIV/AIDS, Cancer, Lou Gehrig’s Disease, Advanced Heart Disease, Liver Disease, etc.

Living Benefit (Accelerated Benefit): Death benefits paid to a policy owner while the insured is still alive using strict guidelines dictated by insurance carrier.

Medical Records: Records provided by an insured’s doctor(s) and other medical care providers or facilities (hospitals, etc.) reflecting the insured’s medical history

MIB (Medical Information Bureau): An agency established in 1902 by physicians who were medical directors for 15 life insurance companies in an effort to reduce insurance fraud in the underwriting of individual life/health/disability insurance applications. The MIB functions like a credit bureau for the insurance industry. Today less than 20% of applicants are screened by the MIB and all records are destroyed after 7 years. No information for life settlements is shared with the MIB.

NAIC or National Association of Insurance Commissioner: The organization of insurance regulators from the 50 states, the District of Columbia and the five U.S. territories. The NAIC provides a forum for the development of uniform policy when uniformity is appropriate.

NCOIL or National Conference of Insurance Legislators: The organization of state legislators whose main area of public policy concern is insurance legislation and regulation. Many legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country.

Non-Contestable Policy: A life insurance policy that is beyond the contestability period

Notary Seal: A legally recognized authority witness to legal written signatures and dates

Owner or Policy Owner: The company or individual that pays premiums and has rights to change beneficiary status and/ or reassign ownership. The Owner is not always the Insured.

Premium Mode: The frequency of premium payments, i.e., monthly, quarterly, or annually.

Premiums: The periodic payment required to keep a life insurance policy funded and in-force

Ratings: Insurance company ratings as published by Standard & Poors, Moody’s, Fitch, or A.M. Best. Ratings are comprised of alphabetic or alphabetic and numeric levels that designate the insurance company’s ability to meet its financial obligations. The ratings are from A to D with the A level being the lowest risk. Most Investors seek an insurance company credit rating of “A-” or better.

Rescission Period: A period of time, dictated, where applicable, by state law, that the seller of a life insurance policy can reverse a life settlement transaction. In most regulated states, the rescission period is 15 days. The rescission period does not start until the seller has received the funds from the escrow agent. For a rescission to be effective, the money must be returned to the Life Settlement Provider within the rescission period.

SGLI: Serviceman’s / Servicewoman’s Group Life Insurance Policy

Split-Dollar Policy: A life insurance policy that includes an arrangement between two parties where life insurance is written on the life of one party who also names the beneficiary of the net death benefits (death benefits less cash value) and the other party is assigned the cash value of the policy. The two parties share the responsibility for making premium payments.

State Regulations: State Government Rulings

STOLI or Stranger Owned Life Insurance: STOLI is the issuance of life insurance for the benefit of an individual who has no insurable interest to the insured.

Suicide Period: The period of time that a life insurance policy does not pay a death benefit is death is by suicide. If an Insured commits suicide during the suicide period, the insurance company must return the premiums paid on the policy to that date. The suicide period usually coincides with the Contestability Period.

Term Policy: A life insurance policy that provides coverage for a limited number of years and expiring without value if the Insured survives the stated period, which may be one or more years, but usually is 5 to 30 years

Tracking: A process of maintaining contact with the life status of the Insured of a life insurance policy after the policy has been sold in a life or viatical settlement

Underwriting: Information gathering and verifying process whereby the company assures that all relevant policy and medical information is available for review to analyze a life insurance policy, determine a life expectancy, and value a policy

VGLI: Veteran’s Group Life Insurance

Verification of Coverage (or VOC): A statement provided by an insurance company defining the current status of a life insurance policy, including relevant policy values, premium payments, and ownership status

Viatical Settlement: A transaction where a lump sum cash payment is made to the owner of a life insurance policy to purchase both the rights of ownership and beneficiary designation where the Insured has 24 months or less life expectancy and/or has a terminal illness (exact definition depends on specific state law)

Viatical: A word derived from the Latin word VIATICUM which, loosely translated, means provisions for a long journey (viaticum referred to the provisions supplied to the Roman soldiers preparing to do battle). The term has been adopted to mean the sale of a life insurance policy in the secondary market, usually referring to a situation where the Insured is terminally ill and/or has less than 24 months to live.

Viator: Seller of a life insurance policy, sometimes used to refer to a policy where the insured has a 24 months or less life expectancy,