Glossary of Terms (F-O)

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Face Page (or schedule):: Visually, the first page of an insurance policy on which are listed the major details of the policy such as life insured, policy number, face amount of insurance, beneficiary, date of issue, premium details.
Fact Finding:: The process of collecting information from a prospect, for the express purpose of determining the individual’s need for insurance and the quantity and type of insurance most suitable for that prospect.
Fair Market Value (FMV):: The highest price available in an open and unrestricted market between a willing buyer and a willing seller dealing at “arm’s length” both of whom are fully informed as to the qualities of the property concerned and neither of whom is under any compulsion or haste to transact the business.
Fiduciary:: One who holds property or an interest in trust for the benefit of a third party.
Financial Planning:: The process of (1) collecting and analyzing information concerning a person’s or a family’s personal and financial situation in order to identify needs and problems; (2) establishing specific financial objectives; and (3) formulating, implementing and continuously monitoring a financial plan to achieve those objectives.
First Mortgage Bond:: A debt security issued by a corporation that is secured by a lien against specific corporate assets.
Fixed Annuity:: An annuity that guarantees the periodic payment of a specified (fixed) amount of income per instalment for life or other periods. (See also Annuity and Variable Annuity).
Flexible Premium Contract:: A life insurance policy or an annuity under which its owner may vary the amounts and/or timing of premium deposits.
Fraternal Insurance:: Insurance provided by fraternal benefit societies, organized without capital stock and not-for-profit and maintaining a lodge system. Almost all fraternal societies operate on a level rate and reserve basis in accordance with special fraternal regulations and under the supervision of provincial authorities.
Fraternal Insurance Counsellor (FIC):: A designation awarded to fraternal life underwriters who complete the prescribed course of study, pass the examinations and meet other requirements.
Fraternal Society:: A social organization that provides insurance for its members.
“Free” Look:: A provision in law allowing the purchaser of a life insurance contract a period of 10 days after policy delivery to decide whether to keep the contract or rescind (return) it to the issuing insurance company. If the policy is returned, the former policyowner is entitled to a full refund of all premiums paid up until that time. No explanation need be given for the rescission.
Front-End Load:: An expense load in a life insurance or annuity contract (or other investment) which is levied (usually on a percentage basis) against funds as they are deposited to the contract.
Fundamental Group Principles:: A series of five basic principles required for the underwriting and administration of group life and health insurance plans, to ensure the integrity, stability and profitability of the plans.

Government of Canada Bond:: A bond issued by the government of Canada, which has a value that can fluctuate in the open marketplace.
Grace Period:: The period (usually 30 or 31 days) following the premium due date, during which an overdue premium for a life insurance policy may be paid without penalty. The policy remains in force throughout this period.
Group Annuity Contract:: A type of registered pension plan designed by insurers for a group of persons (usually employees of a single employer), covering all qualifying persons under one contract. Employer contributions (or employer and employee contributions, as the case may be) are determined by the insurer’s actuaries in accordance with the benefits to be offered. Contributions are turned over to the insurer as specific premiums; the insurer then guarantees payment of the benefits as they accrue to the members of the group who meet the eligibility requirements.
Group Conversion Privilege:: A provision under a group insurance contract (usually for life insurance) which permits a group plan member who leaves the group the option to convert the coverage to personal insurance (without evidence of insurability), usually within 30 days of leaving the group.
Group Insurance:: Insurance issued, usually without medical examination, on a group of people under a master contract. It is usually issued to an employer for the benefit of employees. The individual members of the group hold certificates as evidence of their insurance.
Group Life Insured:: A person whose life is insured under a contract of group insurance, excluding a contract of accident and sickness insurance, and upon whom a right is conferred by the contract, but not including a person who is insured thereunder as a person dependent upon or related to the group life insured.
Guaranteed Cash Surrender Value:: That portion of the cash surrender value of a life insurance contract that is guaranteed and is usually set out in the terms of the contract, based on a certain dollar amount per $1,000 of sum insured, as at the end of any given policy year. The guaranteed cash surrender value does not include such variables as re-invested dividends.
Guaranteed Income Supplement (GIS):: An income-tested, monthly benefit for Old Age Security pensioners with limited income apart from the Old Age Security pension.
Guaranteed Insurability Benefit (GIB):: A low cost policy rider under which the insured has the right to buy additional life insurance at specified future ages without having to provide evidence of insurability. Also called a guaranteed insurability option.
Guaranteed Investment Certificate (GIC):: A security, usually issued by a bank or trust company, offered to the public in denominations of $500 or more, usually for durations of one to seven or eight years, at an interest rate higher than the rate paid on savings accounts. If the depositor dies before the maturity date, the full amount of principal and accrued interest usually is paid to the deceased’s estate (or to the designated beneficiary, if the certificate is held as a registered retirement savings plans).

Independent Financial Brokers/Courtiers indépendants en sécurité financière. A voluntary not-for-profit association, which represents independent insurance, mutual funds, and other financial service brokers and other professionals. Their role is to enhance and protect their members’ businesses and to support consumer choices. Members do not work exclusively for one company, but sell the products and services of two or more companies.

Immediate Annuity:

An annuity contract that provides for the first payment of the annuity at the end of the first interval of payment (monthly, quarterly, semi-annually, annually) after purchase.

Impaired Annuity:

A life annuity issued with a higher income payment than would usually be the case, in recognition of the fact that the annuitant (measuring life for the annuity) is in ill health and has a shorter life expectancy than other individuals of the same age, sex, and smoker status.

Implied Authority:

Authority that is vested in an agent by a principal by implication, rather than by express, written direction.

Income Attribution:

A process whereby a taxpayer who transfers property to a spouse or minor child is required for taxation purposes to include in his or her own income the income from such property or, in the case of sale of such property by the spouse or child, the taxable portion of any capital gain. (See also Attribution Rules.)

Income Splitting:

The technique of shifting investment income from a high marginal tax rate family member to a lower marginal tax rate family member, so as to reduce the overall amount of income taxes paid by the family.

Incontestability:

A provision in the law that a life insurance contract which has been in effect for two years during the life insured’s lifetime is incontestable, except for fraud or misstatement of age, with respect to a failure to disclose or a misrepresentation of a fact relevant to the insurance.

Indexed Annuity:

A life, or term certain, annuity under which the income payments increase by a prescribed percentage rate (e.g. four per cent) each year.

Individual Insurance:

Insurance purchased on an individual basis, which covers only one person or, in some cases, members of the person’s family as well.

Insurable Interest:

An insurable interest must exist at the time when a life insurance contract is to take effect, otherwise the contract is void. A person has an insurable interest in his or her own life and in his or her “child or grandchild; spouse; any person upon whom he is wholly or in part dependent, or from whom he is receiving support or education; employee; and any person in the duration of whose life he has a pecuniary interest.” (“Person” includes an organization, such as a company or association.)

Whether no family relationship or pecuniary interest exists, the insurable interest requirement is satisfied if the intended life insured consents in writing to the insurance.

Insured:

The person or organization that makes a contract with an insurer. (See also Life Insured and Policyowner.)

Insurer:

(See Life Insurance Company.)

Interest-Rate-Sensitive-Policy:

A life insurance policy in which premiums are revised periodically to reflect current and expected interest rates. Also known as new money policy. (See alsoUniversal Life Insurance Policy.)

Intestate:

One who dies leaving no valid will. The deceased’s assets, if any, are distributed in accordance with the laws of intestacy of the jurisdiction in which the deceased was legally domiciled at death. Intestacy frequently causes hardship and rarely reflects the deceased’s wishes.

Investment Company , Fund or Trust:

A company, which uses its capital to invest in other companies. There are two principal types: closed-end and open-end, or mutual fund. Shares in closed-end investment companies are readily transferable in the open market and are bought and sold like other shares. Capitalization of these companies is fixed. Open-end funds sell their own new shares to investors, are ready to buy back their old shares, and are not listed. Open-end funds are so called because their capitalization is not fixed; they issue more shares, without limit, as investors want them.

Irrevocable Beneficiary:

An unalterable designation of any person, the insured having relinquished the right to change the beneficiary designation and placing the life insurance contract beyond the insured’s sole control. The beneficiary, however, is empowered to consent to a change in the designation.

Issued Stock:

Authorized stock of a corporation that has actually been purchased by another corporation or by a member of the public.

Joint Life and (last) Survivor Annuity:: An annuity payable jointly to two (or more) persons for life, ceasing at the death of the last surviving annuitant.
Joint Life Annuity:: An annuity payable to two or more persons for life, but terminating at the death of the first to die.
Joint Life Policy:: A contract that covers two or more lives and provides for the payment of the proceeds at the first death among those insured; the policy then terminates.

Key Person Insurance:: Insurance on the life of a key employee in a business, designed to provide cash to hire and train a replacement and replace lost revenues and profits in the event of the death of the employee.

Lapse:: This term applies to the situation that exists when a premium due is not paid.
Lapsed Policy:: A policy terminated because of non-payment of premiums and/or exhaustion of policy reserves in the case of permanent insurance. This phrase sometimes is limited to a termination occurring before the policy has a cash value or other non-forfeiture value.
Last Expenses:: Expenses and bills either owing at the time of a person’s death or triggered as a result of the death (e.g., medical bills, funeral expenses, probate fees, etc.).
Level Premium Plan:: The plan of insurance (used by all regular life insurers) under which, instead of charging an annually increasing premium which reflects the increasing risk of death, an equivalent level premium is payable. The plan involves the accumulation of reserves arising out of the excess premiums paid in the earlier years and the depletion of those reserves to supplement inadequate premiums in the later years.
Leverage:: Borrowing money for investment, with the expectation that the return on the investment will exceed the interest payable on the loan. (Also, the earnings of a company are said to be leveraged if the capital structure contains debt (bonds) and/or preferred shares ahead of the common share capital.)
Licence:: Certification, issued by the provincial department of insurance, that an individual is qualified to solicit insurance applications for the period covered by the licence. In most provinces, the licence usually is issued for a period of two years and renewable on application. Each agent should be familiar with the laws and regulations in his or her province.
Life Annuity:: An annuity payable throughout the annuitant’s remaining lifetime.
Life Expectancy:: The average duration of the life remaining to a number of persons of a given age, according to a given mortality table. (Not to be confused with probable lifetime, which refers to the difference between a person’s present age and the age that death is most probable, e.g., the age when most deaths occur.)
Life Insurance:: Insurance in which the risk insured against is the death of a particular person, called the life insured, upon whose death within a stated term, or whenever death occurs if the contract so provides, the insurer agrees to pay a stated sum or income to the beneficiary.
Life Insurance Company:: An organization chartered by the Government of Canada or by a provincial government for the purpose of carrying on the business of issuing life insurance and annuity contracts. (Some life insurance companies are also chartered to issue accident and sickness insurance.) Often the term insurer is used, particularly in the various acts (laws) and other legal documents.
Life Insured:: The person whose life is insured. A person insuring his or her own life is both the insured (policyowner) and the life insured. (See also Insured and Policyowner.)
Limited Payment Life Insurance:: Permanent life insurance that pays a benefit on the death of the life insured whenever that occurs, and for which premiums are payable for a specified period of years or until the death of the life insured, if this occurs before the end of the specified period.
Liquidity:: The availability of cash to meet the immediate needs of a family or a business, in contrast to fixed assets such as land, buildings or machinery. Life insurance has a high degree of liquidity.
Locked-In:: Funds transferred to an RRSP from a pension plan may be “locked-in” (inaccessible to the annuitant) subject to the restrictions of provincial pension legislation (e.g., no funds may be paid out until the annuitant reaches age 55).
Low-load Sales Charge:: Often referred to as a Deferred Sales Charge (DSC), a redemption fee or a surrender charge. When a Fund with a Low-load Sales Charge is chosen, a sales charge is applied to withdrawals (surrender) that occur during a specified sales charge period. Funds with a Low-load Sales Charge have a shorter sales charge period that Funds with a Back-end Sales Charge.
Lump Sum:: Payment of the entire proceeds of a life insurance policy in one sum. The method of settlement provided by most policies unless an alternative settlement is elected by the policy owner prior to the life insured’s death, or thereafter by the beneficiary before receiving payment.

Marginal Tax Rate:: The top rate at which a given taxpayer is required to pay income tax. Generally, if the taxpayer were to earn one additional dollar (for example) of income, that dollar would be taxed at the taxpayer’s marginal tax rate.
Market Value:: The Market Value of the Contract is determined to be the sum of the Market Value of Units notionally credited to each Fund in the Contract.
Master Policy:: Sometimes called master contract, the master policy is issued to the employer (or other organization) under a group insurance plan. Contains all the insuring clauses that define participants’ benefits. Participants in the group plan receive individual certificates, which seldom repeat all the insuring clauses contained in the master policy. (See also Certificate of Insurance.)
Material Facts:: A fact in an application for life (or disability) insurance may be considered to be “material” if it is so important to the underwriting process as to be relied upon strongly in the insurer’s ultimate decision as to whether or not to issue an insurance contract on the life of the applicant. Put another way, a material fact is one which, if revealed to the insurer (rather than concealed or misrepresented) would have caused the insurer to decline or rate the policy.
Maturity Date:: The date on which policy proceeds become payable, either upon death or, with an endowment or annuity contract, upon attainment of a predetermined age or date.
Maturity Guarantee:: The value of the Contact that will be used as the basis for the calculation to provide the annuity benefit on the Contract Maturity Date as provided under the Contract.
Maximum Tax Actuarial Reserve (MTAR):: The theoretical line, within an exempt life insurance contract, that marks the maximum amount of cash value that may accrue within the policy (at any given time) on a tax-exempt basis.
Medical Examination:: Usually conducted by a physician, the medical examination is part of the application. Thus it becomes part of the policy contract, and is attached thereto. The so-called non-medical in reality is a short-form medical report and is completed by the agent. Various company rules, such as amount of insurance applied for or already in force, age at time of proposed life insurance, sex, medical history, etc., determine whether the examination shall be “medical” or “non-medical”.
Misrepresentation:: A false statement of a past or present material fact, made in an application for insurance, which induces an insurer to issue a policy it would not have otherwise issued. Also, an agent who misrepresents a policy’s terms, dividends, etc., may be guilty of misrepresenting the facts, and is subject to such penalty as may be prescribed by law.
Misstatement of Age:: In addition to fraud, misstatement of age of the life insured could render a policy voidable by the insurer. However, if an insurer was willing to insure a person at an erroneously stated age, only in rare circumstances would it refuse to do so at the true age. The law therefore provides that, in the case of misstatement of age, the amount of insurance shall be adjusted to the amount that the premium would have purchased at the true age.
Money Purchase Plan:: (See Defined Contribution Pension Plan.)
Mortality Deductions:: Within a universal life insurance policy, the amount deducted from the account value each month to pay for the pure cost of mortality (risk of death) under the contract.
Mortality Table (and experience):: A listing of mortality experience of individuals by age. A mortality table permits the actuary to calculate how long a person of a given age may, on average, be expected to live. There are different types of mortality tables, such as tables for male and female lives (both “smoker” and “non-smoker”), ordinary life insurance, group life insurance, ordinary annuities, and others. Large insurers construct mortality tables from their own experience.
Mortgage Insurance:: One of the basic uses for life insurance. So called because many family heads leave insurance for the specific purpose of paying any mortgage balance outstanding at their deaths.
Mutual Fund:: (See Investment Company)
Mutual Insurance Company:: An insurance company without shareholders in which management is directed by a board elected, in most cases, by owners of participating policies.

Net Assets:: The Net Assets of a Fund are determined by calculation the Market Value of its assets (its investments) and subtracting its liabilities (such as the Fund’s management fees and operation expenses).
Net Cost:: This term ordinarily refers to the actual cost of participating insurance after policy dividends are deducted from the premiums paid. (Because no dividends are payable on non-participating policies, the net cost of such policies is equal to the total premiums paid.) In determining the net cost over a specified period, allowance should be made for the cash surrender value at the end of the period.
Net Cost of Pure Insurance (NCPI):: An annual computation (prescribed by the Income Tax Act) within a life insurance contract, to calculate the term cost of the mortality (risk of death) factor under the contract. NCPI is used to calculate the adjusted cost basis of a life insurance policy, as well as taxable benefits arising from life insurance and the amount that may be deducted annually in respect of collaterally assigned life insurance.
Net Premium:: The actuarial calculation of premiums for a life insurance policy, prior to making allowances for expense loads.
Net Money Policies:: (See Interest-Rate-Sensitive-Policy)
No-Load Funds:: An investment (mutual) fund that is not subject to either front-end or back-end expense charges.
Non-Cancellable Policy:: A health insurance contract provision in which the insurance company can neither cancel coverage nor vary the premium rate specified in the contract. Policies specify, at the time of purchase, the length of time the coverage is non-cancellable and guaranteed renewable.
Non-Contributory Group Plan:: A group life or health insurance plan under which all of the plan premiums are paid by the employer.
Non-Contributory Pension Plan:: A pension plan for which the entire cost of the plan is borne by the employer and no employee contributions are required.
Non-Cumulative Preferred Shares:: Preferred stock of a corporation for which annual dividends which are not paid are lost, rather than being accrued and carried forward to be paid out in some subsequent year.
Non-Exempt Annuity Contract:: Generally, a deferred annuity contract last acquired after Dec. 1, 1982 in which the gain (i.e., value of the contract in excess of its adjusted cost basis) accruing during the accumulation period is reportable annually on the accrual basis for income tax purposes.
Non-Exempt Life Insurance Policy:: A policy last acquired after Dec. 1, 1982 in which the gain (i.e., the value of the policy in excess of its adjusted cost basis), is reportable annually on the accrual basis for income tax purposes.
Non-Forfeiture Options:: The choices available in a life insurance policy to a policyowner if he or she discontinues premium payments on a policy that has accumulated a cash value. Usually, the policyowner may choose one of the following: (a) cash settlement, (b) reduced paid-up amount of insurance, (c) automatic premium loan to continue the full sum insured, (d) extended term insurance for the full sum insured over a specified period (not made available by all insurers).
Non-Forfeiture Values:: Policy values that allow insurance coverage to be continued, in some form, for a period of time, in the event of non-payment of the policy premium. Some examples of typical non-forfeiture values include paid-up values and extended term insurance.
Non-Participating Insurance:: Insurance on which policyowners do not share in any surplus earnings distributed by the company. No policy dividends are payable. The premium is based on an estimate of future costs and investment earnings very close to what the company expects them most likely to be, with a slight margin for contingencies and profit.
Non-Smoker:: In life insurance terminology, generally considered to be an individual who has not smoked cigarettes or used other tobacco products within the preceding 12 months.
Non-Smoker Policies:: Life insurance policies issued with a reduced premium rate on lives of non-smokers, i.e., those who have not smoked a cigarette or other tobacco products stipulated by the insurer during the 12 months preceding the date of application.

Old Age Security Pension (OAS):: In Canada, a pension payable to all persons, age 65 or older, who meet the residency requirements. Partial pensions may be available to those who do not meet all the requirements. (See also Guaranteed Income Supplement).
Open-Ended Fund:: A pooled fund (mutual fund), which can issue and sell an unlimited number of shares (units) to its investors.
Ordinary Life – Straight Life:: (See Whole Life Insurance)
Other similar retirement income Contract:: A reference that includes but is not limited to LRIF, PRIF, and RLIF and any other Contract type that may be introduced under pension legislation.
Over-Funding:: In the case of a universal life insurance contract, the practice of paying more than the required premium, so as to build up tax-deferred cash values in the policy.