Glossary of Terms (P-Z)

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Paid-Up:: A policy on which no further premiums are required. The insurer is held liable for the benefits provided under the terms of the contract.
Paid-Up Additions (PUAs):: Additional insurance purchased by policy dividends on a net single premium basis at the life insured’s attained insurance age at the time the additions are purchased.
Parent Waiver of Premium:: The benefit available under certain policies written on the lives of minor children, upon payment of an extra premium. Provides for future premiums to be waived in the event the person responsible for paying the premiums dies or is disabled before the policy becomes fully paid or matures as a death claim or as an endowment, or before the child attains a specified age.
Participating Insurance:: Insurance on which policyowners share in the surplus earnings distributed by the insurer. Policy dividends are payable. The premium is based on an estimate of future earnings at a somewhat lower level and costs at a somewhat higher level than the insurer expects them most likely to be.
Participating Shares:: Stock in a corporation that is entitled to share in the net profits of business operations through the periodic payment of dividends to the shareholder.
Partnership Insurance:: (See Business Insurance)
Past Service:: In defined benefit pension plans, a calculation of premium contributions allowable in respect of past years for which a current employee was employed with the sponsor of the pension plan, but was not a member of the pension plan.
Pension Adjustment:: A reduction in the amount of contributions that a taxpayer may make to his or her RRSP, allowing for employer or employee contributions made on behalf of the taxpayer in respect of the same taxation year to a pension plan or DPSP of which the taxpayer is a member.
Pension Adjustment Reversal:: A credit to a taxpayer’s carried-forward RRSP room, generated at the time that the taxpayer leaves a defined benefit pension plan.
Permanent Insurance:: Life insurance designed to provide protection until the life insured’s death or, in the case of an endowment or pension-type policy, until a specified date. As with a life annuity, its benefits cannot be outlived.
Planned Giving:: Future gifts to a charity funded by the purchase of a life insurance policy that is subsequently transferred to and made payable to the charity. Premiums paid on such contracts may be treated as charitable contributions for computing the taxpayer’s charitable tax credit.
Policy:: The legal document, as evidence of a contract, issued by the insurer to the policyowner (insured) specifying the conditions and terms of the insurance. Also called the contract.
Policy Dividend:: A yearly refund to the policyowner of a portion of the premium based on the company’s experienced and anticipated costs. Policy dividends are not guaranteed but depend on mortality experience, morbidity experience, investment earnings, expenses and other factors and may be decreased or increased at the discretion of the company. Dividends may be received in cash, applied to reduce policy premiums, or used to buy paid-up insurance additions, equity units or one-year term insurance equal to the cash surrender value, or accumulate at compound interest, or any combination of the foregoing.
Policy Fee:: With some insurers, the base premium rate per $1,000 is multiplied by the amount of insurance (in thousands). Then a policy fee, independent of the amount of insurance, is added. Use of this method results in a final premium rate per $1,000 of insurance that is graded by the amount of insurance. As the amount of insurance increases, the final premium per $1,000 decreases. The policy fee is intended to defray administrative expenses associated with the policy.
Policy Loan:: A loan made by a life insurance company to a policyowner on the security of the cash value of a policy.
Policyowner:: The person who owns an insurance policy. Also called the insured. In life insurance, the policyowner is usually the life insured, but not necessarily so. (See also Insured and Life Insured and Policyholder.)
Policy Reserves:: The funds that an insurance company holds specifically for the fulfillment of its policy obligations. Reserves are required by law to be so calculated that, together with future premium payments and interest earnings, they will enable the company to pay all future claims.
Population Mortality Table:: An actuarial table that predicts mortality rates (number of deaths per thousand per year, by class of individual) based on the general population at large.
Preferred Beneficiary:: Prior to July 1, 1962, in the common law provinces, a beneficiary of a life insurance policy who was in the “preferred class” (spouse, children, grandchildren, parents of the policyowner). If a beneficiary in the preferred class was named, the policyowner was restricted in what he or she could do with respect to that policy.
Preferred Risk:: A person whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity that is superior to that of average unimpaired lives of the same age. (See also Standard Risk.)
Preferred Share (Stock):: A class of share capital that entitles the owners to a stated dollar value per share in liquidation and a fixed dividend ahead of the company’s common shares. Preferred shares usually have voting rights only when a stated number of dividends have been omitted.
Premium:: The payment, or one of the periodic payments, a policyowner is required to make for an insurance policy. The policyowner’s only obligation under an insurance contract is to pay the periodic premium.
Premium Mode:: The frequency (e.g., monthly) with which premiums are paid under a life insurance policy, in order to make up the equivalent annual premium.
Premium Notice:: Notice of premium due, sent by an insurer or one of its agencies to a policyowner.
Premium Offset:: A method of arranging for a participating policy to “pay its own future premiums” after a number of years. Applicable where policy dividends have been taken as paid-up additions. The current dividend is applied towards premium payment, with the required amount of accumulated paid-up additions surrendered to pay the balance. Assuming policy dividends continue, the premium offset procedure can be continued for an indefinite period. The procedure reduces the total sum that would otherwise be payable at death.
Premium Reduction:: The practice of using the annual dividend paid under a participating life insurance contract to pay a portion (or all) of the premium otherwise payable by the policyowner each year.
Premium Taxes:: A tax levied by the provincial governments on premiums paid on life insurance contracts. Usually calculated at a rate of about two per cent.
Prescribed Annuity Contract:: Under an annuity described in the Income Tax Act as a prescribed annuity contract, the income (some capital plus interest) is calculated by a formula that apportions the capital element evenly over the expected payment period. This automatically levels out the (taxable) interest portion and thereby reduces the annuitant’s tax liability in the early years when he or she may be in a higher tax bracket than later on in retirement. (Under a conventional annuity contract the capital element in the early years is much smaller than the (taxable) interest element, which gradually declines and becomes minimal at the end of the repayment period.)
Present Value of Future Benefits:: A mathematical calculation that estimates the value today of an amount payable in the future, allowing for a discount for lost earning power on the funds in the interim.
Principal:: An individual who appoints another (an agent) to act on his or her behalf, usually in business transactions. A life insurance company would be an example of a principal employing agents to transact business on its behalf.
Principal Residence:: For income tax purposes, the property that a taxpayer “ordinarily inhabits” during the year and which the taxpayer elects to designate as his or her principal residence. Capital gains realized upon the disposition of a principal residence are exempt from taxation.
Private Corporation:: A corporation generally owned by a small group of shareholders (or as few as one shareholder). The shares of a private corporation are not for sale to the general public and are not listed on a stock exchange.
Public Corporation:: A corporation owned by a wide number of shareholders. The shares of a public corporation are freely available to the general public and frequently are listed on a stock exchange.

Quick-Pay:: Under a universal life insurance policy, or a flexible-premium whole life insurance policy, the practice of paying greater than required premiums in the early years of the contract, so that the policyowner no longer has to make any premium contributions after a given date.

RRIF Minimum Payment:: The minimum amount (computed by formula) that must be paid out as income to the annuitant of an RRIF each year.
RRSP:: Registered Retirement Savings Plan
RRSP Over-Contribution:: An amount deposited to an RRSP as a contribution, but which is in excess of the taxpayer’s allowable annual limit. Accumulated RRSP contributions in excess of $2,000 are subject to a penalty tax of one per cent per month.
Rate of Mortality:: For a given class of individuals (e.g. male, non-smokers, aged 47), the number of people per thousand that are expected to die within the next twelve months.
Rated Policy:: Sometimes called an extra-risk policy, this is an insurance policy issued at a higher premium rate than standard.
Rebating:: Granting the purchaser of a policy any form of inducement, favour or advantage not available to all under the standard policy terms. Rebating is an offence under the provincial insurance acts.
Recapture of Capital Cost Allowance:: The amount that must be included in a taxpayer’s income if the taxpayer disposes of depreciable property for proceeds greater than the property’s undepreciated capital cost.
Redeemable Preferred Shares:: Preferred shares of a corporation under the terms of which the issuing corporation has the right to buy back the shares, at a prescribed price and at a specified time.
Reduced Paid-Up Insurance:: A form of paid-up insurance available as a non-forfeiture option when the insured ceases paying the planned premium. It provides insurance payable at the same time and in the same manner as the original policy, but for a reduced amount.
Re-Entry Term:: A renewable term insurance policy, under the terms of which the policyowner has the option to either renew the policy at a guaranteed (high) rate of premium or can elect to re-qualify medically and have the policy renewed at a much lower rate.
Refund of Premium:: Under an RRSP, an amount paid out to the spouse or dependent child upon the death of the plan annuitant.
Registered Life Insurance:: A life insurance policy that is registered as an RRSP and for which a portion of the premiums paid annually qualify as RRSP contributions.
Registered Pension Plan (RPP):: A group pension plan, registered with Revenue Canada, under which contributions qualify for a deduction from income for taxation purposes.
Registered Retirement Income Fund (RRIF):: One of several RRSP post-maturity options available. Each year it must pay out an amount at least equal to the fund’s value at the beginning of the year multiplied by a percentage factor based on the age of the annuitant (or of the annuitant’s spouse, if younger, if so desired). The fund must be registered with Revenue Canada.
Registered Retirement Savings Plan (RRSP):: A plan registered with Revenue Canada under section 146 of the Income Tax Act. Within prescribed limits, contributions from earned income are deductible for taxation purposes and the growth of the plan is tax-sheltered — a dual advantage of great significance in encouraging retirement savings. The plan must mature no later than the end of the year in which the owner attains age 69. Proceeds are taxable, but when taken as retirement income — when the owner’s tax bracket is (hopefully) lower than during the earning years — the income tax impact is lessened. (See also Spousal RRSP.)
Rescission:: Repudiation of a contract. (No reason need be given if a policyowner rescinds the contract during the rescission period.)
Reinstatement:: By the terms of most life insurance policies, the policyowner has the right to reinstate a lapsed policy within the specified period (usually two years) by furnishing satisfactory evidence of insurability and paying all outstanding premiums, plus interest thereon.
Renewable Term Insurance:: Term life insurance that can be renewed at the end of the term, generally of one or five years’ duration, at the policyowner’s option and without evidence of insurability, for a limited number of successive terms. The premium usually increases at each renewal as the life insured’s age increases and in accordance with a guaranteed premium rate schedule written into the policy at commencement.
Replacement:: The act of purchasing an individual life insurance contract as a consequence of which one or more individual contracts with a different insurer are rescinded, lapsed, surrendered, changed to paid-up insurance or extended term insurance, changed to reduce the benefits. (See also Twisting and Churning.)
Revocable Beneficiary:: Any person designated as beneficiary, but not “irrevocably.” Such designation is subject to change at any time by the insured, without the consent of the beneficiary. (See also Irrevocable Beneficiary.)
Rider:: Agreement attached to a policy by which the conditions of the policy are expanded, and additional coverage added, or a coverage or condition is waived. Loosely used to refer to any supplemental agreement attached to and part of the policy.
Rollover:: Legal transfer of property from one registered vehicle or taxpayer to another without incurring an immediate income tax liability.
Rule of 72:: A rule of thumb for estimating the number of years that it will take for a sum of capital to double at a given compound rate of interest. Divide the interest rate into the number 72 to obtain the time period.

Securities:: A general term meaning usually (a) share, which represents ownership and therefore a form of equity, and (b) bonds, which represent debts owed by the issuer of the bonds to the purchasers.
Segregated Funds:: Investment funds maintained by a life insurance company and fully segregated from the company’s general investment funds, as required by law. They are the investment vehicles for variable contracts, the values of which will vary according to the market value of the assets held in the segregated funds.
Series:: A notional grouping of Units of Funds that all provide the same contractual benefits. Every Fund available under this contract is associated with a Series. The date of initial Deposit into a Series determined the version of benefits that are provided under that Series.
Settlement Options:: The several ways, other than immediate payment in cash, in which the policy owner or beneficiary may choose to have life insurance policy benefits paid. The usual options are: (1) proceeds left on deposit to earn compound interest; (2) fixed instalments for a period certain; (3) life income with a specified number of years’ payment certain, (4) fixed instalments for as long as the proceeds and interest will last.
Shareholder:: An individual, corporation or trust, which owns shares of stock (of any class) of a corporation.
Similar Fund:: For the purpose of being considered a Similar Funds, a Fund must have a comparable investment objective, be in the same investment category and have the same or lower management fee as the original Funds at the time.
Single Need Planning:: A process whereby an agent focuses on just one, isolated requirement of a client (such as an outstanding mortgage balance) and provides product, or other recommendations to resolve that one particular problem, without reference to the balance of the client’s estate or financial plan.
Single Premium:: The lump sum required to cover the entire cost of a life insurance or annuity contract.
Small Business Corporation:: A private corporation which is more than 50 per cent owned by Canadian residents and which carries on active business in Canada.
Smoker:: For life insurance purposes, an individual who has smoked cigarettes or used other tobacco products within the past 12 months.
Spousal RRSP:: An RRSP registered with Revenue Canada in the name of the taxpayer’s spouse, who must be both the applicant and annuitant. The contributor-taxpayer is entitled to deduct contributions to the spousal RRSP within the limits prescribed by the Income Tax Act. The previously described attribution rules do not apply, unless cash is withdrawn from the plan (or from a RRIF to which spousal RRSP funds have been transferred) within three years of a deposit. A spousal RRSP plan can reduce a married couple’s tax liabilities in retirement by the splitting of income.
Spouse:: For tax purposes, a member of the opposite sex or same sex, to whom one is legally married, or with whom one has been living in a conjugal relationship for at least 12 months, or with whom one is living and has had a child.
Standard Risk:: A person who, according to an insurer’s underwriting standards, is entitled to buy insurance without extra rating or special restrictions.
Standard or Statutory Provisions:: A set of policy provisions prescribed by provincial laws, setting forth certain rights and obligations of both the insured and the insurer under an individual policy of insurance.
Stock:: (See Common Stock (shares), Preferred Share (stock).)
Stock Insurance Company:: An insurance company with share capital, in which management is directed by a board elected partly by the shareholders and partly by the participating policyowners, if any. The shareholders share in any company profits.
Straight Life:: (See Whole Life Insurance.)
Stripped Bond:: A bond, which has had its interest coupons removed and which, therefore, bears no interest.
Substandard (Impaired) Risk:: A risk that cannot meet the normal health requirements of a standard insurance policy. Protection is provided in consideration of a waiver, a special policy form, or a higher premium charge. Substandard risks may include those persons who engage in certain sports and persons who are specially rated because of undesirable lifestyles or health conditions. (See also Rated Policy.)
Suicide Clause:: Most policies provide that if the life insured commits suicide within a specified period (usually two years) after date of issue, the insurer’s liability will be limited to a return of premiums paid.
Sum Insured:: The amount stated on the “face” (first page) of the policy that will be paid on the death of the life insured or at maturity of the policy. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends. Also called sum assured and face amount.
Supplementary Major Medical Expense Coverage:: (See Extended Health Care Insurance.)
Surrender:: To relinquish a policy.
Surrender Charge:: A back-end load levied at the time that an annuity or contract of life insurance is surrendered. Such charges are generally based on a percentage of the surrender value of the contract (annuity) or a multiple of the minimum required premium (life insurance).
Surrender Value:: (See Cash Surrender Value.)
Survivorship Life Annuity:: (See Joint Life and (last) Survivor Annuity.)

Tax Shelters:: Specific forms of investment (e.g. RRSPs), which because of some favourable treatment, are expected to produce returns beyond those normally associated with such investments. Some types of investment are exceptionally high risk and would not be attractive without favourable tax treatment.
Taxable Income:: The income upon which income tax is required to be paid after an accounting of all allowable deductions, credits and exemptions.
Temporary Insurance Agreement:: An agreement between an insurer and an applicant for insurance, provisionally providing insurance coverage from the date of application until the date of issue (or decline) of the actual insurance contract.
Term Certain Annuity:: An annuity contract, under which the income payments are to continue for a pre-determined, fixed period of time, rather than for the life of the annuitant.
Term Life Insurance:: Temporary life insurance payable on the death of the life insured, provided that death occurs within the specified period outlined in the policy.
Term to 100:: A term insurance policy with level premium payments, which provides insurance coverage to age 100 of the life insured. Most term to 100 policies go into “paid-up” status at age 100.
Terminal T-1 Tax Return:: The last income tax return for a deceased taxpayer, covering the period from Jan. 1 for the year of death until the date of death.
Testate:: A person who dies having left a valid will.
Testator:: The person making the will.
Time Value of Money:: An allowance for the earning power of a given sum of capital, over time. This adjustment will provide the present value or future value of a given sum.
Total Disability Waiver of Premium (TDWP):: A policy rider providing that if the life insured becomes totally disabled prior to a stated age (commonly 65) and remains so disabled for at least six (sometimes three) consecutive months, the insurer will waive the premiums as they fall due for as long as the life insured remains totally disabled. Any premiums paid during the waiting period usually are refunded. Some policies with this rider provide that if the life insured is still totally disabled at a stated age (e.g., 65), the policy will mature and pay the sum insured plus policy dividends, if any.
Treasury Bill:: A liquid, short term (less than one year) debt security, issued by the federal government.
Trust:: An arrangement in which property is held by a person or corporation (trustee) for the benefit of others (beneficiaries). The grantor (person who transfers the property to the trustee) gives legal title to the trustee, subject to the terms set forth in a trust agreement. Beneficiaries have equitable title to the trust property.
Trustee:: A person or company holding the legal title to property for the benefit of another (beneficiary of the property).
Twisting:: The statutory offence by an agent of directly or indirectly inducing a policyowner to surrender or lapse a policy with one insurer and replace it with a policy with another insurer where such act is detrimental to the policyowner’s interests. (See also Churning and Replacement.)

Unbundled:: A life insurance contract, under which the various elements (sum insured, premiums, cash value) are not related to each other in a pre-determined ratio, fixed at the time of policy issue, but rather are a product of the performance of the policy over time.
Undepreciated Capital Cost (UCC):: For income tax purposes, the value of depreciable property, representing its original cost less the total of capital cost allowance (depreciation) claimed to date.
Underlying Fund:: An investment fund in which a Fund invests all or part of its assets. The underlying investments of the Funds may be units of mutual funds, pooled funds or other selected investments owned by us.
Underwriting:: The process by which a life insurer determines whether or not, and on what basis, it will accept an application for insurance.
Unfair Competition or Practice:: Certain deeds and acts considered to be unfair competition and practice in the life insurance industry are also unlawful in most jurisdictions in Canada. The provincial insurance acts provide penalties for such offences as rebating of premiums, replacement of policies under certain circumstances, and misrepresentation. A Code of Ethics published by the Canadian Association of Insurance and Financial Advisors provides guidance to its members regarding ethical practice.
Uniform Life Insurance Act:: A theoretical act, adopted by the common law provinces as part of their provincial legislation, governing life insurance policies resident in their jurisdiction.
Unilateral Contract:: A contract, which is only binding on one of the parties.
Units:: The measurement attributed to the Contract to determine the value of the insurance benefits and of our financial obligation to you. You do not acquire any ownership interest of the Units. Units are notional and are not transferable or assignable.
Unit Value:: A notional value used to measure the Market Value of one Unit (or share) of a Fund.
Universal Life Insurance Policy:: A life insurance policy in which premiums (less expense charges) are credited to a policy account from which periodic charges for life insurance coverage are deducted and to which interest or investment earnings are credited. Usually, the policyowner can vary the amount and timing of premium payments and change the amount of insurance (subject to underwriting).

Valuation Date:

A Valuation Date for the Contract occurs every date on which:

The Toronto Stock Exchange is open for business, and
A value is available for the underlying assets of the Segregated Fund.

Variable Annuity:

The variable annuity is similar to a fixed annuity (see earlier) in that payments will be made periodically to the annuitant, usually over the remaining years of his or her life. With the fixed annuity, however, the amount of each payment is guaranteed by the issuing company; the annuitant may well receive more than the guaranteed amount through dividends, but never less. Under the variable annuity, to the contrary, there is no guarantee of the amount of the payments. The payments fluctuate in accordance with the value of an account, usually invested primarily in common stocks. Thus, under the fixed annuity the risk of investment loss is borne by the company, but under the variable annuity, this risk is shifted to the annuitant. The main attraction of the variable annuity is that its accumulation and distribution values tend to vary with the general economy–and thus (over the long term) may be expected to keep pace with inflation.

Variable Contract:

A life insurance or annuity contract whose reserve, or a part thereof, varies in amount depending on the market value of a specified group of assets held in a separate and distinct fund and which includes a provision in a life insurance contract under which policy dividends are deposited in such a fund. The benefits will vary according to investment performance. A variable contract must contain two main elements: (1) an insurance element (protection in event of death or an annuity option in event of survival); (2) a reserve (referred to above), commonly called the equity element.

Variable Life:

A hybrid product considered as life insurance and an equity product. It consists of permanent coverage; however, the cash value–which is not guaranteed–is invested usually in common stocks, bonds and money market funds. The premiums remain level. The death benefit varies with investment performance.

Vesting:

In a registered pension plan, the employee’s right to the employer’s contributions made on his or her behalf, whether or not the employee continues to be a member of the plan. The period of membership before vesting occurs is not uniform across Canada, but in pension plans registered under the federal Pension Benefits Standards Act it now occurs after two years’ membership. Some provinces have legislated similar liberalized requirements.

Waiver of Premium Disability Benefit:: (See Total Disability Waiver of Premium.)
Whole Life Insurance:: A policy usually with level premiums and providing life insurance for the whole of life. Cash and other non-forfeiture values are provided usually after the policy has been in force for two years. Most frequently, premiums are payable throughout life but may be limited to a specified period, e.g. 20 years or to age 65. Also known as Ordinary Life and Straight Life.
Will:: A written instrument, executed in the form required by law, by which a person makes a disposition of personal assets and property to take effect upon his or her death.
Withholding Tax:: An amount of tax (based on a percentage) withheld from certain periodic or lump sum payments, as a reserve against tax which will eventually be payable by the taxpayer receiving the funds.
Workers’ Compensation:: A provincial insurance program, funded by employer payroll contributions, which protects workers in the event of disability caused by job-related illness or injury.

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