Definition of Replacement

Replacement

This subject of replacement of existing policies is covered because sometimes existing life insurance policies are unnecessarily replaced with new coverage resulting in a loss of valuable benefits. If someone suggests replacing your existing coverage, insist on having a comparison disclosure statement completed.
The most important policies to examine in detail are those which were issued in Canada prior to December 2, 1982. If you have a policy of this vintage with a significant cash surrender value, you may want to consider keeping it. It has special tax advantages over policies issued after December 2, 1982.
Basically, the difference is this. The cash surrender value of a pre December, 1982 policy can be converted to an annuity in accordance with the settlement options in the policy and as a result, the tax on any policy gain can be spread over the duration of the annuity. Since only the interest element of the annuity payment will be taxed, there will be less of a tax impact on the annuitant. Policies issued after December 2, 1982 which have their cash surrender value annuitized trigger a disposition and the annuitant must pay tax on the total policy gain immediately. If you still decide to replace existing coverage, don't cancel what you have until the new coverage has been issued.

Backfill

The replacement of excavated earth into a trench around or against a basement or crawlspace foundation wall.

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.

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).

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.

Annual Premium

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

Annuitant

this is the person during whose life an annuity is payable.

Annuity

A contract which provides an income for a specified period of time, such as a certain number of years or for life. An annuity is like a life insurance policy in reverse. The purchaser gives the life insurance company a lump sum of money and the life insurance company pays the purchaser a regular income, usually monthly.

Annuity

Periodic payments made to an individual under the terms of the policy.

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.

Back To Back Annuity

this term refers to the simultaneous issue of a life annuity with a non-guaranteed period and a guaranteed life insurance policy [usually whole life or term to 100]. The face value of the life insurance would be the same amount that was used to purchase the annuity. this combination of life annuity providing the highest payout of all types of annuities, along with a guaranteed life insurance policy allowed an uninsurable person to convert his/her RRSP into the best choice of annuity and guarantee that upon his/her death, the full value of the annuity would be paid tax free through the life insurance policy to his family members. However, in the early 1990's, the Federal tax authorities put a stop to the issuing of standard life rates to rated or uninsurable applicants. Insuring a life annuity in this manner is still an excellent way to provide guaranteed tax free funds to family members but the application for the annuity and the application for the life insurance are separate transactions and today, most likely conducted through two different insurance companies so that there is no suspicion of preferential treatment given to the life insurance application.

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.

Basement Foundation

A basement is a usable foundation that typically has ceiling heights of 8' and is often finished off as living or storage space.

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 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.

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.

Canada Pension Plan (CPP)

A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).

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.

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.

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.

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.

Crawlspace Foundation

The space between the ground and the first floor of a home, usually no higher than four feet.

Crawlspace Vent

An opening to allow the passage of air through the unexcavated area under a first floor. Ideally there should be at least two vents per crawlspace.

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.

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.

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.

Deemed Disposition

Under certain circumstances, taxation rules assume that a transfer of property has occurred, even though there has not been an actual purchase or sale. this could happen upon death or transfer of ownership.

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.

Duration

The time it takes for a policy or annuity to reach maturity.

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.

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.

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.

Gable End Wall

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

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.

Individual Insurance

insurance that is offered to individuals rather than groups.

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.

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.

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.

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

A premium that remains unchanged throughout the life of a policy

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.

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 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.

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.

Mortgage Critical Illness Insurance

Mortgage Critical Illness insurance is available as an enhancement to Mortgage life insurance. It is usually underwritten by the Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of insurance. It is recommended for all mortgagors. It can pay off your mortgage -- up predefined limit -- if you are diagnosed with life-threatening cancer, heart attack or stroke.

Mortgage Insurance

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.
The cost of mortgage lender's insurance group coverage is based on a blended non-smoker/smoker rate, not having any advantage to either male or female. Mortgage lender's group insurance certificate specifies that it [the lender] is the sole beneficiary entitled to receive the death benefit. Mortgage lender's group insurance is not portable and is not guaranteed. Generally speaking, your coverage is void if you do not occupy the house for a period of time, rent the home, fall into arrears on the mortgage, and there are a few others which vary by institution. If, for example, you sell your home and buy another, your current mortgage insurance coverage ends and you will have to qualify for new coverage when you purchase your next home. Maybe you won't be able to qualify. Not being guaranteed means that it is possible for the lending institution's group insurance carrier to cancel all policy holder's coverages if they are experiencing too many death benefit claims.
Mortgage insurance purchased from a life insurance company, is priced, based on gender, smoking status, health and lifestyle of the purchaser. Once obtained, it is a unilateral contract in your favour, which cannot be cancelled by the insurance company unless you say so or unless you stop paying for it. It pays upon the death of the life insured to any "named beneficiary" you choose, tax free. If, instead of reducing term life insurance, you have purchased enough level or increasing life insurance coverage based on your projection of future need, you can buy as many new homes in the future as you want and you won't have to worry about coverage you might loose by renewing or increasing your mortgage.
It is worth mentioning mortgage creditor protection insurance Since it is many times mistakenly referred to simply as mortgage insurance. If a home buyer has a limited amount of down payment towards a substantial home purchase price, he/she may qualify for a high ratio mortgage on a home purchase if a lump sum fee is paid for mortgage creditor protection insurance. The only Canadian mortgage lenders currently known to offer this option through the distribution system of banks and trust companies, are General Electric Capital [GE Capital] and Central Mortgage and Housing Corporation [CMHC]. The lump sum fee is mandatory when the mortgage is more than 75% of the value of the property being purchased. The lump sum fee is usually added onto the mortgage. It's important to realize that the only beneficiary of this type of coverage is the morgage lender, which is the bank or trust company through which the buyer arranged their mortgage. If the buyer for some reason defaults on this kind of high ratio mortgage and the value of the property has dropped Since being purchased, the mortgage creditor protection insurance makes certain that the bank or trust company gets paid. However, this is not the end of the story, because whatever the difference is, between the disposition value of the property and whatever sum of unpaid mortgage money is outstanding to either GE Capital or CMHC will be the subject of collection procedures against the defaulting home buyer. therefore, one should conclude that this kind of insurance offers protection only to the bank or trust company and absolutely no protection to the home buyer.

Mortgage Life Insurance

A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.

Mortgage Life insurance (Credit Insurance)

Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.

Non-participating Policy

A type of insurance policy or annuity in which the owner does not receive dividends.

Nonbearing Wall

A wall supporting no load other than its own weight.

Overhang

Part of the roof that hangs over the wall.

Participating Policy

A policy offers the potential of sharing in the success of an insurance company through the receipt of dividends.

Payment Frequency

The choice of making regular mortgage payments every week, every other week, twice a month or monthly.

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.

Policy

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.

Policy Anniversary

Yearly event linked to a policy. Usually the date issued.

Policy Date

Date on which the insurance company assumes responsibilities for the obligations outlined in a policy.

Policy Fee

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.

Policy Fee

Administrative charge included in a policy premium.

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