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Definition of 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.
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.
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.
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.
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.
A licensed insurance agent who sells insurance for only one company.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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."
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.
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.
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.
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.
This is a will which specifically expresses the testator's desire not to be kept alive on Life support machines, should the occasion arise.
Commonly sold in the form of reducing Term Life insurance by lending institutions, this is Life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional Life insurance companies. No matter where it is purchased, the reducing Term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
This is an administrative fee which is part of most Life insurance policies. It ranges from about $40 to as much as $100 per year per policy. It is not a separate fee. It is incorporated in the regular monthly, quarterly, semi-annual or annual payment that you make for your policy. Knowing about this hidden fee is important because some insurance companies offer a policy fee discount on additional policies purchased under certain conditions. sometimes they reduce the policy fee or waive it altogether on one or more additional policies purchased at the same time and billed to the same address. The rules are slightly different depending on the insurance company. There could be enormous savings if several people in the same family or business were intending to purchase coverage at the same time.
This is the person who owns a Life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation. There are instances in marriage breakup (or relationship breakup with dependent children) where appropriate Life insurance on the support provider, owned and paid for by the ex-spouse receiving the support is an acceptable method of ensuring future security.
Registered Retirement Income Fund (Canada)
Commonly referred to as a RRIF, this is one of the options available to RRSP holders to convert their tax sheltered savings into taxable income.
Split Dollar Life Insurance
The split dollar concept is usually associated with cash value Life insurance where there is a death benefit and an accumulation of cash value. The basic premise is the sharing of the costs and benefits of a Life insurance policy by two or more parties. Usually one party owns and pays for the insurance protection and the other owns and pays for the cash accumulation. There is no single way to structure a split dollar arrangement. The possible structures are limited only by the imagination of the parties involved.
Temporary Life Insurance
Temporary insurance coverage is available at time of application for a Life insurance policy if certain conditions are met. Normally, temporary coverage relates to free coverage while the insurance company which is underwriting the risk, goes through the process of deciding whether or not they will grant a contract of coverage. The qualifications for temporary coverage vary from insurance company to insurance company but generally applicants will qualify if they are between the ages of 18 and 65, have no knowledge or suspicions of ill health, have not been absent from work for more than 7 days within the prior 6 months because of sickness or injury and total coverage applied for from all sources does not exceed $500,000. Normally a cheque covering a minimum of one months premium is required to complete the conditions for this kind of coverage. The insurance company applies this deposit towards the cost of a policy at its issue date, which may be several weeks in the future.
Term Life Insurance
A plan of insurance which covers the insured for only a certain period of time and not necessarily for his or her entire Life. The policy pays a death benefit only if the insured dies during the Term.
Yearly Renewable Term Insurance
sometimes, simply called YRT, this is a form of Term Life insurance that may be renewed annually without evidence of insurability to a stated age.
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.
A grouping of sales producers according to region. Compare with Branch.
One who represents Canada Life when providing services to clients
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.
Automatic Benefits Payment
Automatic payment of moneys derived from a benefit.
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.
Borrower (Credit Insurance)
A consumer who borrows money from a lender.
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.
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.
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.
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.
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 (Credit Insurance)
Group insurance designed to cover monthly obligations due to a borrower being unable to work due to sickness or injury.
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.
Life insurance or annuity product in which the cash value and benefit level fluctuate according to the performance of an equity portfolio.
insurance that is offered to individuals rather than groups.
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.
Person whose Life is protected under a specific policy.
One of several investment accounts in which your premiums may be invested within your Life insurance policy.
Legal designation that cannot be contested. (See beneficiary)
age of an insured as at the policy issue date, using "age nearest" next birthday formula.
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.
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.
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.
The person who's Life is protected by an individual policy.
The time when a policy or annuity reaches the end of its span.
Mortgage Life insurance (Credit Insurance)
Decreasing Term Life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.
Mortgage (Credit Insurance)
An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for purposes of purchasing a loan secured by a home.
A type of insurance policy or annuity in which the owner does not receive dividends.
A policy offers the potential of sharing in the success of an insurance company through the receipt of dividends.
Personal Line of credit (Credit Insurance)
A bank's commitment to make loans to a borrower up to a specified maximum during a specific period, usually one year.
A written document that serves as evidence of insurance coverage and contains pertinent information about the benefits, coverage and owner, as well as its associated directives and obligations.
Yearly event linked to a policy. Usually the date issued.
date on which the insurance company assumes responsibilities for the obligations outlined in a policy.
Administrative charge included in a policy Premium.
Period between two policy anniversaries.
The person who owns and holds all rights under the policy, including the power to name and change beneficiaries, make a policy loan, assign the policy to a financial institution as collateral for a loan, withdraw funds or surrender the policy.
Pre-existing medical condition (Credit Insurance)
A medical condition that existed before you became insured. Most policies exclude benefits if the condition is related to the event that triggers a claim if occurs within a certain period (6-12 months) after you became insured.
Used in older contracts to confer the same rights as an irrevocable beneficiary. Applied to family members.
Premium (Credit Insurance)
Annual or monthly amounts payable, by a client, for a selected insurance coverage to insure debt obligations to their creditors are protected.
Refinancing (Credit Insurance)
Extending the maturity date or increasing the amount of existing debt or both. Also, revising a payment schedule, usually to reduce the monthly payments and often to modify interest charges.
Process in which the risk of potential loss is shared between two or more insurers.
Strike Insurance (Credit Insurance)
Coverage that can pay down your debt should you become unemployed due to a legal strike in your place of work. The payment is made to your creditors to reduce your debt owing.
The time period during which a policy is in force, or the time it takes for a policy to reach maturity.
A product that provides Life coverage for a specified duration typically not beyond the age of 75.
Terminal Illness Insurance (Credit Insurance)
Coverage that provides a lump-sum payment should you become Terminally ill. The payment is made to your creditors to pay off your debt owing.
Cease all legal obligations under a contract.
An unbundled Life product with a separate investment component. It typically does not participate in companies profits.
date on which valuation occurs.
Waiting Period (Credit Insurance)
A specific time that must pass following the onset of a covered disability before any benefits will be paid under a creditor disability policy. (Also known as an elimination period).
Component that provides Life coverage during the insured's Life.
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.
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.
A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its Terms.
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.
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