Glossary Of Terms
Annuity: A policy issued by a life insurance company that can either be a tax deferred accumulation plan (similar to a CD) or provide annual income payments for life or a specified period.
Free Look: After a customer receives their newly purchased insurance policy, there is a period of 10 to 30 days (depending on the type of policy and what state you are in) during which you have the right to examine the policy. If, for any reason during that time period you choose not to keep the policy, you may return it for a full refund of all premiums paid. Guaranteed and no questions asked.
Term Life Insurance:The most inexpensive and basic of all life insurance plans. There is no cash value to these types of policies, only a death benefit. Usually these plans are purchased only for a certain number of years and not held permanently.
Permanent Life Insurance:These types of policies have premiums that are higher that term, but level for the insured’s lifetime. The policy builds up a cash value equity that can be borrowed against or received if the policy is surrendered or canceled. Whole life and Universal Life are examples of permanent plans.
Last To Die/Survivor Life Insurance: These plans are primarily designed for estate planning where the death benefit is not needed until the second spouse dies. These policies are permanent plans. They insure both husband and wife, but only pay the death benefit at the second death. By doing this they provide much lower premiums than an individual plan or either party by themselves.
Life Settlement: A process by which a company that specializes in purchasing existing life insurance policies from the policyholders offers a cash settlement. In exchange for the sale price, the setllement company becomes the new owner, premium payor and beneficiary of the policy’s death benefit.
Lifetime Estate tax Exemption: The amount of assets an individual can transfer at their death without incurring estate, or death taxes. Currently the exemption amount is $3,500,000 in 2009, but drops back down to $1,000,000 in 2011 under the current tax structure. Married couples may combine their exemptions.
Lifetime Gift Tax Exemption: Under the current code, any individual may gift up to $1,000,000 to any other individual or individuals without incurring a gift tax. this benefit is in addition to the $11,000 annual gift exemption that each person is entitled to.
Long Term Care: insurance that provide coverage for expenses if you need the services of a nursing home (full care), assisted living facility (partial care) or professional home health care services (partial care in your home).
Non-Qualified Plans: Plans such as Annuities where the contributions to the plan are made with after tax dollars. Interest earnings are allowed to accumulate on a tax deferred basis. Only when the funds are withdrawn are the interest earnings taxed. The principal is received tax free.
Premium Financing: the process by which an insurance policy owner secures an annual loan to pay the premiums on his policy. The loan balance is usually not required to be paid until the policyholder dies. At that point, the loan balance is deducted from the death benefit proceeds and the net remaining amount paid to the heirs. Thereby allowing the insurance to be bought with no out of pocket outlay.
Proposition 103: State legislation enacted by the California State Legislature in 1988 allowing insurance agents to rebate a portion of their commissions to their clients.
Rebate: A portion of the sale commissions on an insurance policy legally return to the client by the agent. Currently legal only in the state of Florida and California.
Qualified Plans: Plans such as IRAs, 401ks or any other pension plan that allows the individual to contribute money to the plan and deduct the contributions from his current annual income. There are penalties for withdrawal prior to age 59 and 1/2 and all funds (principal and interest) are taxed as ordinary income when received.
Tax Deferral: The special tax status awarded life insurance policies and annuities issued by insurance companies under the IRS Code. Any interest earned in these policies is allowed to accumulate without incurring any taxes until such time as it is withdrawn from the policy.
Underwriting: The process of applying to an insurance company in order to qualify to purchase an insurance policy. This usually consists of a medical exam, submission of the applicants medical records from their doctors and financial statements on income and net worth if applying for large sums of insurance. The process can take anywhere from 4 weeks to 3 months depending on the size and type of policy being applied for.
1035 Exchange: The process by which the IRS allows a policy holder to transfer cash values from an old policy being dropped to an new policy replacing it. The funds are transferred directly from old policy to new policy, thereby preserving the tax deferred status of the cash values.
1099-MISC: A type of tax form used to report miscellaneous income, such as income earned as a non-employee, as well as fees, commissions, rents, or royalties paid during the last tax year. Payments for prizes, awards, legal services, and other non-employee activities may be reported on this form as well.