Glossary of Terms (A-E)

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Absolute Assignment:
A policy assignment under which the assignee (the person to whom a policy is assigned) receives full control over the policy and full rights to its benefits. Generally, when a policy is assigned to secure a debt, the insured retains all rights in the policy in excess of such debt, even though the assignment is absolute in form. (See also Assignment and Collateral Assignment)
Accident and Sickness Insurance:
Insurance providing for the payment of benefits as the result of sickness or injury. Includes various types of insurance such as: accident insurance, disability income replacement insurance, medical expense insurance, accidental death and dismemberment insurance.
Accidental Death and Dismemberment Benefit (AD&D):
A form of accident and sickness insurance that provides payment in the event of death or loss of one or more bodily members (such as hands or feet), or the sight of one or both eyes, as the result of an accident.
Account Value:
In a universal life contract, the accumulating (reserve) fund that is invested on behalf of the policyowner. The account value represents the gross policy reserve, before allowing for back-end surrender charges (where applicable). (See alsoCash Surrender Value and Surrender Charge)
Accrual Rules:
Tax rules applying to non-exempt policies last acquired after Dec. 1, 1982, requiring any unrealized (i.e., not actually triggered) gain to be reported as income. (See also Non-exempt Life Insurance Policy)
A person professionally trained in the mathematical and technical aspects of insurance and related fields, particularly in the calculation of premiums and other values.
Adjusted Cost Base (ACB):
For depreciable property, the ACB is the capital cost of the property when it is acquired or purchased. For non-depreciable capital property, the original cost is subject to frequent adjustment reflecting transactions and other changes between the dates of acquisition and disposition.
Adjusted Cost Basis (ACB):
The base value from which accrued income and policy gains for life insurance and annuity contracts are measured. The ACB changes with each transaction with respect to the policy; some transactions increase it and others decrease it.
The brand name of The Financial Advisors Association of Canada. In September 2002, the Canadian Association of Insurance and Financial Advisors (CAIFA) and the Canadian Association of Financial Planners (CAFP) merged to create Advocis, Canada’s largest association of professional financial advisors, with members in 50 Chapters across the country. The new name represents what members do best – Advice and Advocacy.
“Age Admitted”:
Noted on a life insurance policy where the applicant has provided proof of age (e.g., a birth certificate) during the application process. Having “age admitted” will speed up the claims process in the event of the death of the life insured.
Age Adjustment:
Increase or decrease of the face amount payable under a life insurance contract, to compensate for a misstatement of age of the life insured at the time of policy application. The face amount is adjusted to the amount of coverage that the premium paid would have purchased had the life insured’s correct age been used.(See also Misstatement of Age)
Age At Issue:
The age of an insurance applicant or an insured as used for insurance purposes. In some companies, the issue age is the age at last birthday; in others, it is the age at the nearest birthday.
Amount At Risk:
The difference between the sum insured and the reserve or policy value at a given date. In other words, the amount over and above what the policyowner has contributed in the way of policy value toward the payment of a claim against the policy. Because the policy value increases each year, the net amount at risk normally decreases and finally reaches zero when the policy value or reserve becomes equal to the sum insured.
A person during whose life an annuity income is payable, usually the person receiving the income.
The conversion of the accumulating fund under a life insurance policy or deferred annuity contract into a series of periodic income payments, either for a fixed term of years or for the life of the annuitant.
A contract that provides income payments at regular (typically monthly) intervals, usually for a specified period or for the lifetime of the annuitant.
The tendency for the poorest health risks to be those individuals who are most likely to want to acquire, maintain or convert a life insurance policy.
A statement of information made by a person applying for insurance. The application identifies the plan and amount applied for, the life insured and the beneficiary, and provides other data useful in evaluating the risk.
Arm’s Length:
Generally, parties are dealing at arm’s length (objectively) in a transaction if they are not related to each other by blood or marriage.
A person (including a corporation, partnership or other organization) to whom a right or rights under a life insurance policy are transferred by means of an assignment.
The signed transfer by a policyowner of the benefits of a policy to another party. If the insurer is given due notice of the assignment, the policy benefits will accrue to the person named as assignee. The insurer does not guarantee the validity of an assignment. (See also Absolute Assignment and Collateral Assignment)
A person (including a corporation, partnership or other organization) who transfers rights under an insurance policy to another by means of an assignment.
These terms are synonymous. Assurance is more commonly used in Britain and some other Commonwealth countries than in Canada. (See Life Insurance)
Attained Age:
With reference to an insured, usually the age at which a policy is issued plus the number of years completed since issue.
Attribution Rules:
Under the Income Tax Act, income (interest or dividends) or capital gain from property earned subsequent to transfer of the property by a taxpayer to his or her spouse or minor children may be deemed to be income or gain of the taxpayer and taxable in his or her hands.
Automatic Premium Loan (APL):
An option that will automatically pay any premium in default at the end of the grace period and charge the amount so paid against the policy as a policy loan, provided such premium is not in excess of the policy’s cash surrender value (CSV) on the due date of the premium (the CSV having been computed on the assumption that such premium had been paid).
Average Tax Rate:
Calculated by dividing the amount of tax payable by a taxpayer in a given tax year, by the taxpayer’s total income for that year. (See also Marginal Tax Rate)


Baby Boom:
A period of significant increase in the number of births per annum in Canada, between 1945 and 1959.
Back-End Charges:
Expense charges associated with life insurance policies, deferred annuities and pooled funds, which are charged only in the event that the contract is actually surrendered (in whole or in part).
Balanced Financial Planning:
A review of a client’s financial program in four key areas: cash on hand, protection dollars, guaranteed investments and equity investments.
Bearer Bonds:
Corporate or government debt securities that are not registered in the name of an individual investor, but are in street form – payable to whoever might present them for payment.
A person or organization (e.g. a corporation) to whom or for whose benefit insurance proceeds are made payable in a contract or by declaration. (Under a pension plan, any person who may become eligible to receive, or who is receiving, benefits under the plan other than as a participant).
The amount payable by the insurance company to a claimant, assignee, or beneficiary when the insured suffers a loss covered by the policy.
Evidence of a debt on which the issuer promises to pay the holder a specified amount of interest for a specified period, and to repay the loan on maturity or expiration date. Strictly speaking, assets must be pledged as security for a bond. However, the term is often used loosely to describe any debt security.
Business Insurance:
Insurance coverage concerned primarily with the protection of an insured’s business or vocation. Business insurance protects a business against the loss of its valuable lives or key personnel; stabilizes the business through the establishment of better credit relations; and provides a practical plan for the retirement of business interests in the event of the death of one of the owners.
Buy-Sell Agreement:
A contract between two or more persons, generally with a business relationship, setting out the conditions under which one may buy out the other’s interest. It is usually funded by life insurance, in full or in part.


Callable Bond:
A bond, which can be called (redeemed) by the issuing corporation or government at the issuer’s discretion, usually after (or within) a specific time period.
Canada Pension Plan (CPP):
An earnings-related pension plan, administered by the Government of Canada, that provides a retirement pension up to the level of 25 per cent of the current average industrial wage. Financed principally by compulsory contributions from income-earners on their annual “pensionable earnings”, as determined each year, and from employers. Several supplementary pensions and benefits are available to family members. The province of Quebec administers its own plan; the Quebec Pension Plan.
CPP/QPP Sharing:
The sharing (in equal portions) of retirement benefits received by a married couple, under either the Canada Pension Plan or the Quebec Pension Plan.
Canada Savings Bonds:
Highly secure and liquid debt securities, issued annually by the Government of Canada.
Canadian Institute of Chartered Life Underwriters and Chartered Financial Consultants (The):
An organization of life insurance representatives awarded the Chartered Life Underwriter (CLU) designation. Members may also qualify for the Chartered Financial Consultant (CH.F.C.) designation. Its objective is to promote the highest possible standard of service to the public.
Canadian Life and Health Insurance Association Inc. (CLHIA):
The oldest organization of its kind in North America (1894). Membership includes Canadian, American, British and European companies representing about 90 per cent of the life and health insurance in force in Canada. Among its roles CLHIA seeks to promote a legislative and regulatory environment in Canada favourable to its members and to provide information and educational resources to the public. Its information centre provides information and responds to consumer concerns. Executive offices: 1 Queen Street East, Suite 1700, Toronto, Ontario M5C 2X9.
Canadian Deposit Insurance Corporation (CDIC):
Backed by the federal government, the CDIC guarantees the principal investment of Canadians (to a maximum of $60,000 per client in each institution) in deposit investments with banks and trust companies, in the event of the insolvency of the issuing company.
Capital Gain or Loss:
Profit or loss resulting from the sale of a capital asset. A percentage of the taxable portion of the gain or the allowable portion of the loss is reportable for tax purposes.
Capital Property:
Investment property identified under the Income Tax Act as having been acquired for its capital growth potential (e.g., shares, mutual funds, real estate).
Capitalized Value:
The amount of capital, invested at a specified interest rate, which would be required to replace the earning or income power of an investment or individual.
Cash Refund Annuity:
An annuity, which pays out, the difference (if any) between its purchase price and the total of annuity payments made to date, upon the death of the annuitant.
Cash Surrender Value:
The amount available in cash upon surrender of a policy (other than a term insurance policy) before it matures. During the early policy years, the CSV is the reserve less a “surrender charge”; in the later policy years, the CSV usually equals or closely approximates the reserve value at time of surrender. A schedule of the CSV per $1,000 (or unit) at the end of various representative policy years generally is included in the policy.
Catastrophic Loss:
A loss that is so significant that it cannot be compensated for out of the income or assets of the insured. An all-encompassing fire destroying a house or the death of an income earner are examples of catastrophic loss.
Certificate of Insurance:
A document delivered to an individual summarizing the benefits and principal provisions of the group contract under which the individual is insured. Also, a written contract between a fraternal benefit society and the member purchasing the insurance, stating the terms and full details of the agreement.
Chartered Financial Consultant (CH.F.C.):
In Canada, a designation conferred jointly by The American College and The Canadian Institute of Chartered Life Underwriters and Chartered Financial Consultants in recognition of the attainment of certain standards and proficiency in the practice of financial planning. The right to the designation is open to all Chartered Life Underwriters who meet the preliminary requirements and pass the requisite examinations. In the USA, the short form is ChFC.
Chartered Life Underwriter (CLU):
A designation conferred by The Canadian Institute of Chartered Life Underwriters and Chartered Financial Consultants in recognition of the attainment of certain standards of education and proficiency in life underwriting. The right to the designation is open to agents and certain other members of a life insurance company or fraternal organization who meet the preliminary requirements and pass the requisite examinations.
Collateral Assignment (insurance):
The assignment of a policy to a creditor as security for a debt. The creditor is entitled to reimbursement from policy proceeds for any amount owed to the creditor at the life insured’s death; the beneficiary is entitled to any excess of policy proceeds over the amount due to the creditor. (See also Absolute Assignment and Assignment).
In respect to benefits of a group health insurance plan, the portion of the expenses claimed which must be borne by the plan member (e.g., 20 per cent).
Common Disaster Clause:
An optional policy clause designed to provide an alternative beneficiary in the event that the life insured and the beneficiary die as the result of a common accident (or each dies in a different location and the order of the deaths cannot be determined). Unless the clause provides otherwise, if the life insured and the beneficiary die at the same time or in circumstances making it uncertain which of them survived the other, the beneficiary is presumed to have predeceased the life insured. Also sometimes called simultaneous death clause.
Common Law:
The body of law developed in England primarily from judicial decisions based on custom and precedent, unwritten in statute or code, and constituting the basis of the English legal system and that of Canada, except Quebec.
Common Stock (shares):
Securities, which represent ownership in a corporation and carry voting privileges.
Commuted Value:
The single sum that represents the present worth, or equivalent value, of a stipulated number of annuity instalments payable at fixed future dates. Also calleddiscounted value.
A Canadian life and health insurance industry-sponsored consumer protection plan which insures specified invested amounts or policy benefits, in the event of the insolvency of the issuing insurance company.
Conditional Insurance Agreement:
Document given by a life insurance agent to a person who, at the time of making application for life insurance, pays the required amount of premium. Consists of two parts: receipt for the premium payment and a certificate evidencing an agreement that provides interim, or “conditional”, insurance while the application is being processed by the insurer.
Under contract law, an asset of discernible value (e.g. cash, cheque, negotiable securities, etc.), which must pass from one party to another in return for goods or services provided. Absent the payment of consideration, a contract is not enforceable in law.
Consumer Price Index (CPI):
An index compiled and published by Statistics Canada of the costs of a selected cross-section of goods and services, which are allocated a value of 100 in the “base (initial) year”. Costs of the selected goods and services in all other years are proportionate to the base year.
Contingent Beneficiary:
A person designated to receive policy proceeds, if the primary beneficiary is deceased at the time the proceeds become payable. Policyowners are generally advised to appoint a contingent beneficiary; otherwise the policy proceeds would become payable to the estate of the insured.
Contingent Owner:
An individual designated to become the successor owner of a life insurance or annuity contract, in the event of the death of the current owner.
Contract of Life Insurance:
In legal terms, includes not only the group policy but also the certificate of group insurance, interim receipt, renewal receipt, or writing evidencing the contract and binding oral agreement.
Under a universal life policy, amounts deposited to the policy in excess of premium deposits designated for payment of insurance and related expenses under the contract.
Contributory Group Plan:
A group pension, RRSP or health insurance policy under which the employee plan members are required to pay a portion of the annual premiums or contributions.
Convertible Bond:
A debt security issued by a corporation, under which the holder of the investment has the option to convert the security into a prescribed number of shares of stock of this issuer.
Convertible Preferred Share:
Shares of a given preferred class of a corporation, under which the shareholder has the option to convert the investment into a prescribed number of common shares of the issuer.
Convertible Term Insurance:
Term insurance which may be exchanged, in part or in whole, at the option of the insured (without evidence of insurability), for permanent insurance (e.g., whole life) within the period specified in the policy.
Conversion Privilege:
The contractual right of the owner of one type of life insurance policy to convert the contract (usually term), without evidence of insurability, to another type of contract (usually permanent) with the same insurer.
Conversion Ratio (Rate):
Generally, the number of common shares, which can be obtained in exchange for one convertible preferred share of this same corporation, under a conversion right.
Corporate Bond:
Debt security, usually long-term, issued by a corporation in order to raise capital.
Corporate Dividends:
Amounts paid to preferred and common shareholders, out of net profits, in cash or stock at the discretion of a corporation’s board of directors.
Coupon Bond:
A debt security (issued by a corporation or a government), which pays periodic interest to investors by way of a coupon physically attached to the bond certificate. Bondholders collect the interest due on the bond by detaching the coupon and cashing it at a financial institution.
Creditor Protection:
The issue of whether or not an investor’s assets are exempt from claims of their creditors in the event that the investor becomes bankrupt.
Creditors Group Insurance:
A class of group insurance (usually decreasing term) effected by a creditor insuring the lives and/or well-being of a number of his or her debtors. If a debtor dies or becomes disabled, the balance of the loan outstanding is paid from the insurance money.
With respect to the capital gains exemption, action taken to trigger a disposition of qualifying assets, so as to trigger the realization of capital gains qualifying for the exemption. Crystallization ensures that the exemption will be used to the benefit of the taxpayer.
Cumulative Preferred Shares:
Participating preferred stock of a corporation for which unpaid annual dividends accrue. Such accrued, unpaid dividends must be paid out to the preferred shareholder in the future, before any dividends can be paid to the corporation’s common shareholders.


Days of Grace:
The number of days (usually 30 or 31) that a life insurance policy will remain in force after a scheduled premium has not been paid.
Death Benefit:
The amount payable from a life insurance or annuity contract, to a named beneficiary, as the result of the death of the life insured or annuitant.
A bond secured by the general credit of the issuer, rather than by specific assets.(See also Bond)
An instrument signed by the insured with respect to which an endorsement is made on the policy, or which identifies the policy or which describes the insurance, and in which the insured designates, alters or revokes the designation of the insured’s personal representative or beneficiary.
Decreasing Term Insurance:
A term insurance policy with a level premium for the life of the contract, but under which the death benefit payable decreases annually. Usually used as protection against declining liabilities, like mortgages.
A fixed dollar amount (either annually or by claim) which an insured must assume before group benefits are payable under a group health insurance policy.
Deemed Disposition:
A change in regard to capital property, which under the Income Tax Act, causes the property to be deemed to have been disposed of, just as though the property had actually been sold. The ruling may apply to life insurance policies under such typical situations as an absolute assignment of a policy or a succession to a contingent owner.
Deferred Annuity:
An annuity providing for periodic payments to begin at some future date, such as after a specified number of years or at a specified age. May be purchased either on a single premium or a regular (e.g., monthly) premium basis.
Defined Benefit Pension Plan:
One of two types of registered pension plans (RPPs), under which benefits are determined by a benefit formula. The required contributions depend on the benefits to be provided and the number of years in the accumulation period. (The opposite to the Defined Contribution Pension Plan.)
Defined Contribution Pension Plan:
One of two types of registered pension plans (RPPs), under which annual contributions are determined by contribution formula set forth in the plan. The benefits paid to a participant vary with the size of the contributions on his or her behalf and length of service under the plan. Also known as a Money Purchase Plan.
Dependency Period Income:
One of the basic uses for life insurance, to generate income for the family until the youngest child attains maturity.
Deposit Administration Contracts:
A method of pension funding in which contributions (as necessary) are deposited with a life insurance company and used to purchase annuities when employees retire. (In contrast to conventional group annuities, under which the funds are immediately used to purchase units of deferred annuities for all participants.) The company acts as the trustee until the annuities are actually purchased.
Disability Income Insurance:
A form of accident and sickness insurance that provides periodic payments when the insured is unable to work as the result of illness or injury.
The concept of full and adequate revelation to a prospect of all pertinent information regarding a contract (especially a variable contract) as a prerequisite to its sale.
The act of divesting oneself of an interest in a life insurance policy by way of surrender, absolute assignment or maturation.
(See Policy Dividend)
Dividend Additions:
An amount of insurance added to participating policies – provided that the policy permits that dividends may be used as single premiums at the insured’s attained age to purchase paid-up insurance as additions to the sum insured. (See alsoPolicy Dividend.)
Dividend Gross-Up:
Increase in the amount of actual dividends received from Canadian corporations (by 25 per cent), to compute the taxable amount of dividends. (See alsoDividend Tax Credit.)
Dividend Options:
A variety of choices offered to owners of participating life insurance policies, for the pay-out, investment or reinvestment of dividends payable on their policies. Standard dividend options include dividends paid out in cash, used to reduce premiums, invested at interest with the insurer and used to purchase paid-up additional insurance.
Dividend Tax Credit:
An amount equal to 16.67 per cent of the actual cash amount of taxable dividends from Canadian corporations. The dividend tax credit offsets federal income tax payable on the dividends and/or other income.
Dollar Cost Averaging:
The periodical investment of a fixed amount in specific shares at regular set intervals, regardless of the price of the stock purchased, usually resulting in the average cost of the shares being lower than the average of their prices.
Double Indemnity:
(See Accidental Death Benefit)


Earned Income:
For RRSP contribution purposes, those amounts of income which qualify to be taken into consideration for calculating the allowable amount of deductible RRSP contributions. “Earned Income” includes such items as salaries, commissions, royalties, net income from self-employment, and net rental income. A percentage (currently 18 per cent) of earned income is used to compute a portion of the RRSP contribution room formula.
Effective Date:
The date upon which a life insurance contract is deemed to go into force.
Emergency Fund:
One of the basic uses for life insurance. A reserve death benefit fund provided by policyowners to protect their families against unexpected large, non-budgetable expenses. The increasing loan values of life insurance policies also constitute (and often are referred to as) emergency funds for policyowners while living.
Employee Booklet:
A publication given to members of a group plan of life or health insurance, explaining the benefits and terms and conditions of the group plan.
A provision that allows that the cash surrender value of a life insurance policy shall equal the sum insured at a specified future date (the endowment date).
Endowment Insurance:
Life insurance payable to the policyowner, if living at the end of a specified period, called the maturity date, or to a beneficiary if the life insured dies prior to that date.
Investment in non-guaranteed assets involving varying degrees of risk, ranging from such relatively conservative assets as real estate, variable contracts, blue chip stocks and other securities, to high risk shares in a junior mining or oil or gas company.
Estate Planning:
The total process of planning an estate, including: (a) creating and conserving an estate; (b) minimizing estate shrinkage at death; (c) creating adequate liquidity for settling the estate; (d) a proper plan for distributing the estate to the owner’s heirs.
Excess Interest:
The difference between the rate of interest the insurer guarantees to pay on proceeds left under settlement options and the interest the insurer actually allows.
Excess RRSP Contributions:
Amounts contributed to an RRSP plan in excess of the deductible amount as calculated under the annual contribution formula. Lifetime, a taxpayer may carry forward up to $2,000 of excess RRSP contributions without being subject to penalty.
A person or a corporation (e.g. trust company) nominated in a will to effect the settlement of the testator’s estate in accordance with the terms of the will.
Exempt Policy:
A life insurance policy that meets the requirements under the exemption test policy and is therefore exempt from current taxation on the buildup of investment income within the policy.
Exemption Test Policy:
A theoretical life insurance policy (based on a 20-pay, endow at age 85 contract) which is used as a benchmark to determine whether or not a given life insurance policy is exempt from current taxation.
Expense Loading:
Agent’s commissions, medical costs and other expenses taken into consideration in determining the amount of front-end charges to be applied to a given class of life insurance contracts. Also used in the computation of premiums to be charged on the contract.
Experience Rating:
A factor taken into consideration at the time of renewal of premium for a group insurance contract (usually annually), allowing for the past claims experience of the group.
Expiry Date:
A predetermined date upon which the benefits of a given contract of life or disability insurance will terminate.
Express Authority:
Authority vested in an agent, by a principal, through specific written (or oral) instruction.
Extended Health Care Insurance:
A form of health insurance (usually group) that provides reimbursement for certain expenses not covered by provincial medical insurance plans and (usually) some other health care expenses. Examples include prescribed drugs, ambulance service, private duty nursing, medical appliances, etc. The policy may contain a deductible amount per annum and/or a co-insurance feature under which claims are shared by the claimant and the insurer on a formula basis, e.g., 20/80 per cent. Also called supplementary major medical expense.
Extended Term Insurance:
The non-forfeiture option that provides that the cash surrender value of a policy, less indebtedness, may be used as a net single premium at the life insured’s attained age to purchase term insurance for the sum insured of the policy for as long a period as possible, but not longer than the term of the original policy.
Extra Premium:
The amount charged in addition to the regular premium rate to cover an extra hazard, special risk or substandard risk.