Definition of Endowment

Endowment

Life insurance payable to the policyholder, if living on the maturity date stated in the policy, or to a beneficiary if the insured dies before that date. For example, some Term to age 100 policies offer the option of taking the face amount of the policy as a cash payout at age 100 if the policyholder is still alive and paying all required income taxes on the amount received or leaving the policy to pay out upon death whereupon the payout is tax free.

Accidental Death and Dismemberment

Coverage that provides a lump-sum payment to you or your survivors if an accident results in the loss of a limb, paralysis or your death.

Accidental Death Benefit (ADB)

Coverage against accidental death usually payable in addition to base amount of coverage.

Accidental Dismemberment: (Credit Insurance)

Provides additional financial security should an insured person be dismembered or lose the use of a limb as the result of an accident.

Accrued Income

income that has been earned but not yet received. For instance, if you have a non-registered Guaranteed Investment Certificate (GIC), Mutual Fund or Segregated Equity Fund, growth accrues annually or semi-annually and is taxable annually even though the gain is only paid at maturity of your investment.

Agency

A grouping of sales producers according to region. Compare with Branch.

Agent

One who represents Canada Life when providing services to clients

Allowance

A sum of money set aside in the construction contract for items which have not been selected and specified in the construction contract. For example, selection of tile as a flooring may require an allowance for an underlayment material, or an electrical allowance which sets aside an amount of money to be spent on electrical fixtures.

Amortization (Credit Insurance)

Refers to the reduction of debt by regular payments of interest and principal in order to pay off a loan by maturity.

Amperage

See Ampere

Annual Percentage Rate (APR)

Annual cost of credit over the Life of a loan, including interest, service charges, points, loan fees, mortgage insurance, and other items.

Area Walls

Corrugated metal or concrete barrier walls installed around a basement window to hold back the earth.

aterial used to cover the interior framed areas of walls and ceilings

Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.

Backout

Work the framing contractor does after the mechanical (heating, plumbing & electrical) subcontractors finish their phase of work at the rough stage prior to insulating to get the home ready for a municipal frame inspection. Generally, the framing contractor repairs anything disturbed by others and completes all framing necessary to pass a Rough Frame Inspection.

Ballast

A transformer that steps up the voltage in a florescent lamp.

Balloon

A loan that has a series of monthly payments with the remaining balance due in a large lump sum payment at the end.

Balloon Framed Wall

Framed walls (generally over 10' tall) that run the entire vertical length from the floor sill plate to the roof. This is done to eliminate the need for a gable end truss.

Beneficiary

This is the person who benefits from the Terms of a trust, a will, an RRSP, a RRIF, a LIF, an annuity or a Life insurance policy. In relation to RRSP's, RRIF's, LIF's, Annuities and of course Life insurance, if the beneficiary is a spouse, parent, offspring or grand-child, they are considered to be a preferred beneficiary. If the insured has named a preferred beneficiary, the death benefit is invariably protected from creditors. There have been some court challenges of this right of protection but so far they have been unsuccessful. See "Creditor Protection" below. A beneficiary under the age of 18 must be represented by an individual guardian over the age of 18 or a public official who represents minors generally. A policy owner may, in the designation of a beneficiary, appoint someone to act as trustee for a minor. death benefits are not subject to income taxes. If you make your beneficiary your estate, the death benefit will be included in your assets for probate. Probate filing fees are currently $14 per thousand of estate value in British Columbia and $15 per thousand of estate value in Ontario.
Another way to avoid probate fees or creditor claims against Life insurance proceeds is for the insured person to designate and register with his/her insurance company's head office an irrevocable beneficiary. By making such a designation, the insured gives up the right to make any changes to his/her policy without the consent of the irrevocable beneficiary. Because of the seriousness of the implications, an irrevocable designation should only be made for good reason and where the insured fully understands the consequences.
NoteA successful challenge of the rules relating to beneficiaries was concluded in an Ontario court in 1996. The insurance Act says its provisions relating to beneficiaries are made "notwithstanding the Succession Law Reform Act." There are two relevent provisions of the Succession Law Reform Act. One section of the act gives a judge the power to make any order concerning an estate if the deceased person has failed to provide for a dependant. Another section says money from a Life insurance policy can be considered part of the estate if an order is made to support a dependant. In the case in question, the deceased had attempted to deceive his lawful dependents by making his common-law-spouse the beneficiary of an insurance policy which by court order was supposed to name his ex-spouse and children as beneficiaries.

Beneficiary

The person designated to receive proceeds entitled by a benefit. payment of a benefit is triggered by an event.

Beneficiary (Credit Insurance)

The person or party designated to receive proceeds entitled by a benefit. payment of a benefit is triggered by an event. In the case of credit insurance, the beneficiary will always be the creditor.

Blended Payments

payments consisting of both a principal and an interest component, paid on a regular basis (e.g. weekly, biweekly, monthly) during the Term of the mortgage. The principal portion of payment increases, while the interest portion decreases over the Term of the mortgage, but the total regular payment usually does not change.

Borrower (Credit Insurance)

A consumer who borrows money from a lender.

Builder's Risk Insurance

insurance coverage on a construction project during construction, including extended coverage that may be added for the contract for the customer's protections.

Bull Nose Drywall

Rounded drywall corners.

Canada Mortgage and Housing Corporation (CMHC)

The National Housing Act (NHA) authorized Canada Mortgage and Housing Corporation (CMHC) to operate a Mortgage insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.

Canadian Deposit Insurance Corporation

Better known as CDIC, this is an organization which insures qualifying deposits and GICs at savings institutions, mainly banks and trust companys, which belong to the CDIC for amounts up to $60,000 and for Terms of up to five years. Many types of deposits are not insured, such as mortgage-backed deposits, annuities of duration of more than five years, and mutual funds.

Canadian Life and Health Insurance Association (CLHIA)

An association of most of the Life and health insurance companies in Canada that conducts research and compiles information about the Life and health insurance industry in Canada.

Captive Agent

A licensed insurance agent who sells insurance for only one company.

Cash reserves

The money the buyer has left over after the down payment and all those closing costs.

Cash Surrender Value

This is the amount available to the owner of a Life insurance policy upon voluntary Termination of the policy before it becomes payable by the death of the Life insured. This does not apply to Term insurance but only to those policies which have reduced paid up values and cash surrender values. A cash surrender in lieu of death benefit usually has tax implications.

Cash Surrender Value

Benefit that entitles a policy owner to an amount of money upon cancellation of a policy.

Child Insurance Rider (CIR)

insurance or insurability provided on current or future children of insured.

Closed Mortgage

A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its Terms.

Closing Date

The date on which the sale of a property becomes final and the new owner usually takes possession.

CMHC or GEMICO Insurance Premium

Mortgage insurance insures the lender against loss in case of default by the borrower. Mortgage insurance is provided to the lender by CMHC or GEMICO and the premium is paid by the borrower.

Co-insurance

In medical insurance, the insured person and the insurer sometimes share the cost of services under a policy in a specified ratio, for example 80% by the insurer and 20% by the insured. By this means, the cost of coverage to the insured is reduced.

Coffered Ceiling

A ceiling with recessed square panels, bordered with trim for ornamental purposes.

Commercial Business Loan (Credit Insurance)

An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for business purposes.

Conditional Offer

An offer to purchase subject to conditions. These conditions may relate to financing, or the sale of an existing home. Usually a time limit in which the specified conditions must be satisfied is stipulated.

Contingent Beneficiary

This is the person designated to receive the death benefit of a Life insurance policy if the primary beneficiary dies before the Life insured. This is a consideration when husband and wife make each other the beneficiary of their coverage. Should they both die in the same car accident or plane crash, the death benefits would go to each others estate and creditor claims could be made against them. Particularly if minor children could be survivors, then a trustee contingent beneficiary should be named.

Conventional Mortgage

A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages (see below).

Cost of Insurance

The cost of insuring a particular individual under the policy. It is based on the amount of coverage, as well as the underwriting class, age, sex and tobacco consumption of that individual.

Creditor (Credit Insurance)

A lender or lending institution that offers financing and loans to a borrower, for the purpose of acquiring a commodity.

Critical Illness Insurance

Coverage that provides a lump-sum payment should you be diagnosed with a critical illness and survive a pre-deTermined period of time. There are no restrictions on how you use your benefit.

Critical Illness Insurance (Credit Insurance)

Coverage that provides a lump-sum payment should you become seriously ill with a specified illness. The payment is made to your creditors to pay off your debt owing.

Dead Peasants Insurance

Also known as "Dead Janitors insurance", this is the practice, where allowed, in several U.S. states, of numerous well known large American Corporations taking out corporate owned Life insurance policies on millions of their regular employees, often without the knowledge or consent of those employees. Corporations profiting from the deaths of their employees [and sometimes ex-employees] have attracted adverse publicity because ultimate death benefits are seldom, even partially passed down to surviving families.

Death Benefit

amount paid on death of an insured.

Debt (Credit Insurance)

Money, goods or services that someone is obligated to pay someone else in accordance with an expressed or implied agreement. Debt may or may not be secured.

Disability Insurance

insurance that pays you an ongoing income if you become disabled and are unable to pursue employment or business activities. There are limits to how much you can receive based on your pre-disability earnings. Rates will vary based on occupational duties and length of time in a particular industry. This kind of coverage has a waiting period before you can begin collecting benefits, usually 30, 60 or 90 days. The benefit paying period also varies from 2 years to age 65. A short waiting period will cost more that a longer waiting period. As well, a long benefit paying period will cost more than a short benefit paying period.

Disability Insurance (Credit Insurance)

Group insurance designed to cover monthly obligations due to a borrower being unable to work due to sickness or injury.

Dividend Policy

This policy governs Canada Life's actions regarding distribution of dividends to policyholders. It's goal is to achieve a dividend distribution that is equitable and timely, and which gives full recognition of the need to ensure the ongoing solidity of the company. It also specifies that distribution to individual policyholders must be equitable between dividend classes and policyholder generations, and among policyholders within any class.

Equity-based insurance

Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.

Errors and Omissions Insurance

insurance coverage purchased by the agent/broker which provides protection against loss incurred by a client because of some negligent act, error, oversight, or omission by the agent/broker.

Face Staple

Stapling facing flange to the front side of a stud or rafter, along the 1½" dimension.

Faced Insulation

Insulation with an attached vapor retarder (kraft paper or foil-backed paper).

Fire Insurance

before a mortgage can be advanced, the purchaser must have arranged fire insurance. A certificate or binder from the insurance company may be required on closing.

Firm Offer

An offer to buy the property as outlined in the offer to purchase with no conditions attached.

First To Die Coverage

This means that there are two or more Life insured on the same policy but the death benefit is paid out on the first death only. If two or more persons at the same address are purchasing Life insurance at the same time, it is wise to compare the cost of this kind of coverage with individual policies having a multiple policy discount.

Fixed-Rate Mortgage

A mortgage for which the rate of interest is fixed for a specific period of time (the Term).

Foil-Faced Vapor Retarder

Created by coating a foil-backed paper with a thin layer of asphalt adhesive. The coated side of the foil-backed paper is then applied to the un-faced insulation material. The asphalt adhesive bonds the foil-backed paper and the insulation together.

Gable End Wall

The triangular end of an exterior wall above the eaves formed under a gable roof.

Gross Household Income

Gross household income is the total salary, wages, commissions and other assured income, before deductions, by all household members who are co-applicants for the mortgage.

Group Life Insurance

This is a very common form of Life insurance which is found in employee benefit plans and bank mortgage insurance. In employee benefit plans the form of this insurance is usually one year renewable Term insurance. The cost of this coverage is based on the average age of everyone in the group. Therefore a group of young people would have inexpensive rates and an older group would have more expensive rates.
some people rely on this kind of insurance as their primary coverage forgetting that group Life insurance is a condition of employment with their employer. The coverage is not portable and cannot be taken with you if you change jobs. If you have a change in health, you may not qualify for new coverage at your new place of employment.
Bank mortgage insurance is also usually group insurance and you can tell this by virtue of the fact that you only receive a certificate of insurance, and not a complete policy. The only form in which bank mortgage insurance is sold is reducing Term insurance, matching the declining mortgage balance. The only beneficiary that can be chosen for this kind of insurance is the bank. In both cases, employee benefit plan group insurance and bank mortgage insurance, the coverage is not guaranteed. This means that coverage can be cancelled by the insurance company underwriting that particular plan, if they are experiencing excessive claims.

High Ratio Mortgage

If you don't have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

High Voltage System

See Electricity.

Income Splitting

This is a tax planning strategy of arranging for income to be transferred to family members who are in lower tax brackets than the one earning the income, thus reducing taxes. Even though attribution rules limit income splitting, there are still a number of legitimate ways to do so, such as through the use of spousal RRSPs.

Individual Insurance

insurance that is offered to individuals rather than groups.

Insurance Act

In Canada, a general statute that contains most of the insurance law of a common law province, and regulates the conduct of insurers and insurance agents within the province.

Insurance Policy (Credit Insurance)

A policy under which the insurance company promises to pay a benefit of the person who is insured.

Insured

This is the person covered by the Life insurance policy. upon this person's death, a tax free benefit will be paid to that person's estate or a named beneficiary.

Insured

Person whose Life is protected under a specific policy.

Insured Mortgage

An insured mortgage protects only the mortgage lender in case you do not make your mortgage payments. This coverage is provided by CMHC [Canada Mortgage and Housing Corporation] and is required if a person has a high-ratio mortgage. [A mortgage is high-ratio if the amount borrowed is more than 75% of the purchase price or appraised value, whichever is less.]

Insured Retirement Plan

This is a recently coined phrase describing the concept of using Universal Life insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to Life insurance, a Universal Life policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the Life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for this to work, you must make deposits into this kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of this use of Universal Life insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of this strategy is the possibility of the government changing the tax rules to prohibit using a Life insurance product in this manner.

Interest Option

One of several investment accounts in which your premiums may be invested within your Life insurance policy.

Interest Rate Differential Amount (IRD)

An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining Term of the mortgage. For more information, click on compensation amounts.

Irrevocable Beneficiary

Legal designation that cannot be contested. (See beneficiary)

Issue Age

age of an insured as at the policy issue date, using "age nearest" next birthday formula.

Issue Date

date on which a policy is approved.

Job Loss Insurance (Credit Insurance)

Coverage that can pay down your debt should you become involuntarily unemployed. The payment is made to your creditors to reduce your debt owing.

Joint Policy Life

One insurance policy that covers two lives, and generally provides for payment at the time of the first insured's death. It could also be structured to pay on second death basis for estate planning purposes.

Knee Wall

A wall-like structure that supports roof rafters.

Kraft-Faced Vapor Retarder

Created by coating kraft paper with a thin layer of asphalt adhesive. The coated side of the kraft paper is then applied to the unfaced insulation material. The asphalt adhesive bonds the kraft paper and the insulation together.

Last To Die Coverage

This means that there are two or more Life insured on the same policy but the death benefit is paid out on the last person to die. The cost of this type of coverage is much less than a first to die policy and it is generally used to protect estate value for children where there might be substantial capital gains taxes due upon the death of the last parent. This kind of policy is also valuable when one of two people covered has health problems which would prohibit obtaining individual coverage.

Lease (Credit Insurance)

Contract granting use of real estate, equipment or other fixed assets for a specified period of time in exchange for payment. The owner or a leased property is the lessor and the user the lessee.

Lender (Credit Insurance)

Individual or firm that extends money to a borrower with the expectation of being repaid, usually with interest. Lenders create debt in the form of loans. Lenders include financial institutions, leasing companies government lending agencies and automobile dealers.

Level Premium Life Insurance

This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Leverage

The use of financing to buy a large investment, such as a house, with a small amount of money.

Life Expectancy

The average number of years of Life remaining for a group of people of a given age and gender according to a particular mortality table.

Life Income Fund

Commonly known as a LIF, this is one of the options available to locked in Registered Pension Plan (RPP) holders for income payout as opposed to Registered Retirement Savings Plan (RRSP) holders choice of payout through Registered Retirement income Funds (RRIF). A LIF must be converted to a unisex annuity by the time the holder reaches age 80.

Life Insurance

insurance that provides protection against an economic loss caused by death of the person insured.

Life Insurance (Credit Insurance)

Group Term Life insurance that pays or reduces the balance due on a loan if the borrower dies before the loan is repaid.

Life Insured

The person who's Life is protected by an individual policy.

Life Underwriter

insurance agent.

Living Benefit

some insurance companies include this benefit option at no cost to their policy holders. The insurer considers on a case to case basis, the need for insurance funds before death. If the insured can demonstrate a shortened Life of less than two years and with some insurers one year, the insurer will consider releasing up to 50% or a maximum of $100,000 of the Life insurance coverage held by the insured. Not all insurers offer this benefit for free. The need has resulted in specific stand alone living benefit/critical illness policies coming into existence. Look under "Different types of Life insurance" for further information. You might have heard of "Viatical Settlements", the practice of seriously ill people selling the rights to their Life insurance policies to third parties. This practice is common in the United States but has not caught on in Canada.

Living Square Footage

See Square Footage, living

Living Will

This is a will which specifically expresses the testator's desire not to be kept alive on Life support machines, should the occasion arise.

Load-Bearing Wall

Includes all exterior walls and any interior wall that is aligned above a support beam or girder. Normally, any wall that has a double horizontal top plate.

Low-Voltage System

Provides security, entertainment, communications, environmental control, networking, and other functions generally powered by a signal cable, phone line or data cable. Is not typically metered.

Maturity

The time when a policy or annuity reaches the end of its span.

Maturity Date

Last day of the Term of the mortgage agreement.

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