Living Benefits® Financial Group

Terminology

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Because professionals--- insurance executives, financial planners, trust attorneys--- may be involved in structuring a life settlement on behalf of a client, LIVING BENEFITS® FINANCIAL SERVICES has completed this section on terminology.

Absolute Assignment
The assignment by the owner of a life insurance policy under which the assignee receives all right, title and interest to the policy and its benefits. This includes the right to designate policy beneficiaries.

Accelerated Death Benefits (ADB)
An option offered by an insurer (usually in the form of a free rider) to its policy owners that provides for an advance of a portion of the policy’s net death benefit prior to death of the insured. The option is contingent upon the policy insured having a diagnosed life threatening condition and a remaining maximum estimated life expectancy of 12 months or less. (some insurers impose a maximum of six months).

Attending Physician Statement (APS)
The form filled out by the insured’s attending physician that describes and documents the insured’s current medical condition and soundness of mind. top

Beneficiary
The person(s) or other legal entity(ies) designated by the policyowner as the recipient(s) of the net death benefit of a life insurance policy upon the death of the insured. top

Cash Value
The amount of available value built up in “permanent” (whole, variable, universal) policies based upon the excess of premiums paid over the cost of insurance. The cash value may be used to pay premiums or to borrow against.

Cash Surrender Value
The amount of money paid to the policy owner of a permanent policy by the insurer if the policy owner surrenders the policy (assuming that the policy has cash value built up).

Collateral Assignment
The assignment of a policy by its owner as collateral for a loan. In the event the loan is not repaid prior to the death of the insured, the collateral assignee would be entitled to receive policy net death benefit in repayment of the loan to the extent of its assigned interest.

Contestability
In most states, after a life insurance policy and any attached riders have been in force for a period of two years, a death claim made under the policy may not be contested by the insurer for any reason. If the life insurance policy lapses and is reinstated, the contestability period may, at the insurer’s discretion, recommence as of the date of reinstatement with respect to statements made in the reinstatement application. Likewise, if there is an increase in insurance death benefits, a new two-year contestability period may be applied as to the increased coverage. In some states, a policy may still be contested for fraud beyond the contestability period. top

Date of Issue
The date upon which the policy coverage becomes effective. top

Financing/Funding/Lending Source
The entity(ies) which provide policy acquisition capital to life settlement companies. top

In Force
Issuance of an in-force policy usually depends on underwriting. Generally, insurance coverage is deemed to be “in force” upon receipt by the insurer of the initial premium and acceptance of the application. A policy remains in force so long as premium obligations are satisfied or until the policy matures upon the attainment by the insured of the maximum age provided under policy terms.

Insured
The person whose life is insured by an insurance policy and upon whose death, the policy’s net death benefits are paid to the beneficiary(ies).

Insurer
The insurance company which issues the policy. top

Lapsed Policy
A policy that is no longer in force because of a failure to maintain the premium payment schedule. A lapsed policy may be eligible for reinstatement upon request.

Life Insurance Policies

Group

Group policy provides coverage for all eligible members of a defined group. It is most often issued to an employer as a benefit to its employees but may also be issued to many different types of associations or affinity groups for their members. Group policies do not qualify for life settlements with Living Benefits® Financial Services.

Individual

Term Life: A policy that provides a fixed amount of net death benefit for a fixed premium cost for a fixed “term”/period of time. This type of policy does not build up any cash value.

Permanent:

Universal Life: A policy extending for the life of the insured which permits the policy owner flexibility over the amount of premium to be paid so long as it is not less than the cost of the insurance.

Variable Life: A policy extending for the life of the insured with a flexible premium cost so long as it is not less than the cost of insurance. The flexible premium cost provides for the investment of the cash value in a choice of stock, bond or money market funds. This allows the cash value to earn rates of return which may at times be greater than a fixed income return generated by the Insurer’s own management.

Whole Life: A policy extending for the life of the insured with a fixed premium cost. This policy will pay a predetermined rate of return on the cash value.

Other Types of Policies:

Survivorship: (also known as “Second-to-die”). This policy insures two lives rather than one. The death benefit is not paid until the last of the two insureds die. Life expectancy of such a policy is based upon an aggregate calculation of the estimated life expectancies of both insured lives.

Key Man (Key Person): Insurance policy purchased by an employer on the life of a key employee, the loss of whose services would cause an employer financial loss. The policy is owned by and benefits payable to the employer.

Life Settlement Provider
The company that purchases life insurance policies in a life settlement.

Life Settlement or Senior Settlement
The purchase of a policy for less than its death benefit. The purchase price is based on the present value of the policy’s future net death benefit determined by actuarial calculation of the insured’s estimated remaining life expectancy as well as remaining policy premium costs to life expectancy (plus a margin for error), the purchaser’s cost of funds, the administrative costs incurred to maintain the policy and the purchaser’s profit expectations. top

Net Death Benefit
The dollar amount a policy will pay upon the death of the insured. It equals the policy face value plus cash value less any outstanding loans, interest or premiums in arrears. top

Policy Owner
The individual or entity, who owns all right, title and interest in an individual life insurance policy.

Policy Loans
Most permanent policies permit the policy owner to borrow against the policy cash value on a non-recourse basis. The policy loan need not be repaid prior to the death of the insured and remains as a debt against the policy cash value or face value.

Policy Premium Payments
The first premium is due in advance of the issue date of the policy. Premiums are paid at the election of the policy owner either annually, semi-annually, quarterly or monthly. The minimum premium amount is specified in the policy. top

Solvency Ratings
Rating guides that life settlement companies use to evaluate the relative financial strength of insurers (e.g. Standard & Poor’s). Solvency is the insurer’s ability to pay its debts and to pay policy benefits when they come due.

Suicide Exclusion
In most states if the insured, whether sane or insane, dies by suicide within two years from the policy issue date, the liability of the insurer is limited to the premiums paid, not the net death benefit. top

Verification of Coverage (V.O.C.)
A questionnaire sent by LIVING BENEFITS® FINANCIAL SERVICES to the insurer, requesting detailed verified information on the current status of each policy. The information provided will be a key determinative of whether the policy can be purchased.

Viatical Settlement
The sale of a policy insuring the life of an individual determined to have a catastrophic or life threatening illness, generally resulting in an estimated remaining life expectancy of two years or less. The purchase price is based on the present value of the policy net death benefit determined by the insured’s estimated life expectancy, the remaining policy premium costs to life expectancy (plus a margin for error), the purchaser’s cost of funds, the administrative costs incurred to maintain the policy and the purchaser’s profit expectations. top