Definition of Lapse

Lapse

Termination when a policy has no cash value after all attempts at conservation have failed.

Lapse

This refers to the termination of an insurance policy due to the owner of the policy failing to pay the premium within the grace period [Usually within 30 days after the last regular premium was required and not paid]. It is possible to re-instate the coverage with the same premium and benefits intact but the life insured will have to qualify for this coverage all over again and bring up to date all unpaid premiums.

Lapse subsidized

This refers to the practice of some life insurance companies to offer policies which are lower in price because they have assumed a high probability that the policies will be cashed in by their owners for one reason or another before the death benefit becomes available. It is a bold and risky offer by the insurance company because sometimes the purchasers of these policies simply don't lapse them.

Lapses

Policies which are sold but do not remain in force because the policyholder fails to pay premiums.

Reinstatement

This is the restoration of a lapsed life insurance policy. The life insurance company will require evidence of continuing good health and the payment of all past due premiums plus interest.

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.

Account Value

The sum of all the interest options in your policy, including interest.

Accumulated Value

An amount of money invested plus the interest earned on that money.

Aggregate

A mixture of sand and stone and a major component of concrete.

Agreement of Purchase and Sale

A legal agreement that offers a certain price for a home. The offer may be firm (no conditions attached), or conditional (certain conditions must be fulfilled before the deal can be closed).

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.

Amortization Period

The time over which all regular payments would pay off the mortgage. this is usually 25 years for a new mortgage, however can be greater, up to a maximum of 40 years.

Ampere

A unit of electrical current or volume--see "Voltage." Most homes have an electrical service 'entrance' package of 125 or 200 amps. some older homes have 60 or 100 amp 'entrances'.

Annual Premium

Yearly amount payable by a client for a policy or component.

Annuity Period

The time between each payment under an annuity.

Appraisal Value

An estimate of the market value of the property.

Area Walls

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

Assessed value

The dollar value of an asset assigned by a public tax assessor for the purposes of taxation.

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

Automatic Benefits Payment

Automatic payment of moneys derived from a benefit.

Automatic Waiver of Premium

A benefit that automatically forfeits premium payments.

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.

Barrel Vault

A vaulted ceiling of semi-circular shape, creating a dome-like appearance.

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.

Benefit

An instruction that pays a cash amount upon the occurrence of a specific event.

Benefit Value

The amount of cash payable on a benefit.

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.

Book Returns

Book yield is the investment income earned in a year on a portfolio of assets purchased over a number of years and at different interest rates, divided by the book value of those assets.

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.

Built-Up Roof

A roofing composed of three to five layers of asphalt felt laminated with coal tar, pitch, or asphalt. The top is finished with crushed slag or gravel. Generally used on flat or low-pitched roofs.

Bull Nose Drywall

Rounded drywall corners.

Buy/Sell Agreement

this is an agreement entered into by the owners of a business to define the conditions under which the interests of each shareholder will be bought and sold. The agreement sets the value of each shareholders interest and stipulates what happens when one of the owners wishes to dispose of his/her interest during his/her lifetime as well as disposal of interest upon death or disability. life insurance, critical illness coverage and disability insurance are major considerations to help fund this type of agreement.

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.

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.

Circuit Breaker

A device which looks like a switch and is usually located inside the electrical panel or circuit breaker box. It is designed to (1) shut of the power to portions or all of the house and (2) to limit the amount of power flowing through a circuit (measured in amperes). 110 volt household circuits require a fuse or circuit breaker with a rating of 15 or a maximum of 20 amps. '220' volt circuits may be designed for higher amperage loads e.g. a hot water heater may be designed for a 30 amp load and would therefore need a 30 amp fuse or breaker. also see GFI

Clerestory

An outside wall of a room or building that rises above an adjoining roof and contains windows.

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.

Compound Interest

Interest earned on an investment at periodic intervals and added to principal and previous interest earned. Each time new interest earned is calculated it is on a combined total of principal and previous interest earned. Essentially, interest is paid on top of interest.

Concrete Block

A hollow concrete 'brick' often 8" x 8" x 16" in size. Often used in low rise commercial and some residential construction. The original design and use is attributed to the architect Frank Lloyd Wright.

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 Owner

this is the person designated to become the new owner of a life insurance policy if the original owner dies before the life insured.

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.

Creditor Proof Protection

The creditor proof status of such things as life insurance, non-registered life insurance investments, life insurance RRSPs and life insurance RRIFs make these attractive products for high net worth individuals, professionals and business owners who may have creditor concerns. Under most circumstances the creditor proof rules of the different provincial insurance acts take priority over the federal bankruptcy rules.
The provincial insurance acts protect life insurance products which have a family class beneficiary. Family class beneficiaries include the spouse, parent, child or grandchild of the life insured, except in Quebec, where creditor protection rules apply to spouse, ascendants and descendants of the insured. Investments sold by other financial institutions do not offer the same security should the holder go bankrupt. There are also circumstances under which the creditor proof protections do not hold for life insurance products. Federal bankruptcy law disallows the protection for any transfers made within one year of bankruptcy. In addition, should it be found that a person shifted money to an insurance company fund in bad faith for the specific purpose of avoiding creditors, these funds will not be creditor proof.

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.

Daily Interest Accumulation

Account in which interest is accrued daily and credited to the account at the end of a specified time.

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.

Deed (Certificate of Ownership)

The document signed by the seller transferring ownership of the home to the purchaser. this document is then registered against the title to the property as evidence of the purchaser's ownership of the property.

Deferred Annuity

An annuity providing for income payments to commence at a specified future time.

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.

Earnest money

A deposit made by potential home buyers during negotiations with the seller. The sum shows a seller that a buyer is serious about purchasing the property. The money usually is counted toward the down payment.

Egress

A means of exiting the home. An egress window is required in every bedroom and basement. Normally a 4' X 4' window is the minimum size required.

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.

Fiat Money

Fiat Money is paper currency made legal tender by law or fiat. It is not backed by gold or silver and is not necessarily redeemable in coin. this practice has had widespread use for about the last 70 years. If governments produce too much of it, there is a loss of confidence. Even so, governments print it routinely when they need it. The value of fiat money is dependent upon the performance of the economy of the country which issued it. Canada's currency falls into this category.

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.

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.

Foreclosure

A legal procedure whereby the lender eventually obtains ownership of the property after the borrower has defaulted on payments.

Gable End Wall

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

GFI -See Ground Fault Current Interrupter

Grace Period

A specific period of time after a premium payment is due during which the policy owner may make a payment, and during which, the protection of the policy continues. The grace period usually ends in 30 days.

Ground Fault Current Interrupter

An electrical device used to prevent injury from contact with faulty electrical appliances and faulty wiring
electrical shocks. GFIs should not be confused with AFIs, the later are designed to prevent electrical fires. GFIs are required in new home bathrooms, kitchen, garage, out of doors and in other locations where one might be in contact with a grounded surface or body of water and an electrical appliance. Most GFI's are located in the receptacle itself or a curcuit breaker and can be identified by the presence of a 'test' and a 'reset' button.

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.

Guaranteed Interest Annuity (GIA)

Interest bearing investment with fixed rate and term.

Guaranteed Interest Certificate (GIC)

Interest bearing investment with fixed rate and term.

Guaranteed Renewal

A promise that a life insurance policy will be renewed without penalty or medical examination after the term has expired. The renewal rate can also be guaranteed.

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.

Individual Insurance

insurance that is offered to individuals rather than groups.

Inspection Report

this is a telephone interview of the person applying for life insurance conducted by someone from the underwriting department of the insurance company. some insurance companies only sporadically contact applicants and some contact every applicant. On average the interview lasts between 15 to 30 minutes. The questions asked relate to personal habits (like smoking and alcohol consumption) and finances, including income and net worth, confirmation of employment, duties and the nature of the applicant's business. In addition, there are questions about driving, sports, aviation and currently held insurance. all information obtained is strictly confidential and is submitted solely to the underwriter for review.

Insurable Interest

In England in the 1700's it was popular to bet on the date of death of certain prominent public figures. Anyone could buy life insurance on another's life, even without their consent. Unfortunately, some died before it was their time, dispatched prematurely in order that the life insurance proceeds could be collected. In 1774, English Parliament passed a law which restricted the right to be a beneficiary on a life insurance contract to those who would suffer an economic loss when the life insured died. The law also provided that a person has an unlimited insurable interest in his own life. It is still a legal stipulation that an insurance contract is not valid unless insurable interest exists at the time the policy is issued. life insurance companies will not, however, issue unlimited amounts of coverage to an individual. The amount of life insurance which will be approved has to approximate the loss caused by the death of the individual and must not result in a windfall for the beneficiary.

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.

Insurer

The party in an insurance contract that promises to pay a benefit if a specified loss occurs. Usually an insurance company.

Interest Option

one of several investment accounts in which your premiums may be invested within your life insurance policy.

Interest Rate

Rate charged or paid for the use of money, normally expressed as a percentage

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 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.

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