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Life Settlement Glossary
- capitalization rate
- A measurement often used in financial projections that represents
the ratio between the net operating income produced by an asset and its
original cost or current market value.
- The finite total amount of life insurance coverage an individual
may have inforce based on insurance company guidelines such as age,
income, and net worth. Because a life settlement policy still remains
in force after it is sold, it must be included in that limit and
permanently reduces the amount of additional coverage available for
- Another name for an insurance company and refers to the fact they
"carry" the policy and the risk assumed.
- cash back life insurance
- Most commonly a type of term life insurance that returns the
premiums paid if the insured is still living at a specified point in
time. These policies carry an increased cost which can negate any
- cash call insurance
- This happens when an insurance company has a shortfall of cash
required to maintain their required reserves, often due to a large
unanticipated loss. The money can come from a variety of sources
including reinsurance companies or the government.
- cash payment dividend option
- A participating whole life insurance policy dividend option that
allows dividends to paid to the policy owner in cash on the anniversary
date of the policy.
- cash refund settlement option
- A provision of the life income death benefit settlement option of a
life insurance policy whereby any proceeds remaining when the primary
beneficiary dies will be paid in a single sum to a contingent payee.
- cash settlement
- Pertaining to life settlements, a lump sum amount tendered to the
policyowner in exchange for the absolute assignment of an existing life
- cash surrender value
- A non-forfeiture value within a life insurance policy that allows
the policy owner to terminate it by obtaining a cash settlement from
the issuing company.
- cash value
- The net cash amount available in exchange for the full surrender of
an in force life insurance policy.
- cash value loan
- A made by a life insurance company to the policyowner secured by
the cash value of the policy.
- ceding company
- The insurance company who writes a policy and then "cedes" a
portion of the risk to a reinsurance company.
- certificate of assumption
- Most often, a certificate sent to a policyowner when their
insurance company has been sold to or otherwise assumed by another
insurance company or reinsurer. It provides written notice of the
assumption as well as information about the assuming company.
- certificate of indebtedness
- In connection with the interest only death benefit settlement
option of a life insurance policy, a certificate provided by the
insurance company to a beneficiary evidencing its indebtedness, the
frequency of interest payments to be made, and the guaranteed minimum
- certificated trust
- A trust that is often established in conjunction with a life
settlement that includes transferrable certificates of beneficial
interest in the trust.
- certificates of coverage
- Proof of coverage provided by a group insurance contract to each
individual insured member to serve as evidence of coverage and a brief
summary of benefits and provisions.
- chain of origination
- For life settlements, the route a life insurance policy follows
from the initial policyholder to the final investor.
- chartered life underwriter (CLU)
- A professional designation granted to life insurance professional
by The American College evidencing life insurance planning experience
and the successful completion of courses related to insurance,
investments and taxation.
- choice of law
- Legal language that deals with the legal jurisdictions that govern
a contract or the stage of a case that involves possible legal
differences or conflicts between different jurisdictions.
- chronically ill
- This typically means meeting any one of three conditions pertaining
to 1) the inability to perform daily activities, or 2) health and
safety related threats due to mental impairment, or 3) disability
caused by conditions like those that limit the performance of daily
- A formal request for the expected benefits promised by an insurance
- claim investigation
- The process of collecting and verifying the information needed to
determine the validity of a claim against an insurance policy.
- The individual or entity that files a claim for expected benefits
from an insurance policy.
- closing documents
- For life settlements, the legal documents required to finalize a
- Usually an asset pledged for the repayment of a loan if the
borrower is unable to satisfy the obligation according to the
stipulated repayment schedule.
- collateral assignment
- Pertaining to life insurance, certain policy rights pledged to a
third party and registered with insurer as collateral for a loan or
- collateral source rule
- A rule of law that prohibits admitting evidence that compensation
for a victim's damages have or could also be compensated for by another
source in addition to court awarded damages. For example, evidence that
damages related to medical expenses also reimbursed by insurance would
normally not be admissible.
- combined ratio
- A profitability measure used by insurance companies to determine
how well they are doing based on its risk underwriting practices as
measured by the amount of premiums it is taking in versus the amount it
is paying out in claims. A ratio below 100%�indicates profitability
from underwriting alone, excluding additional profits resulting from
investment earnings. A ratio below 100% represents an underwriting
loss, even though the addition of investment earnings could still make
the company profitable overall.
Pertaining to life insurance and life settlements, the amount of
compensation paid in conjunction with either the purchase or sale of a
policy, most often calculated as a percentage of the premiums paid
(life insurance) or the proceeds received (life settlement).
- commissioners standard ordinary mortality (CSO)
- An approved actuarial table of the National Association of
Insurance Commissioners that is used to calculate nonforfeiture values
and policy reserves for life insurance policies.
- company owned life insurance (COLI)
- Life insurance owned by a corporate employer and insuring the lives
of employees for a number of business reasons.
- Pertaining to life settlements, the fee or commission that is
usually paid to the life settlement broker who negotiates the sale of a
life insurance policy on behalf of the policyowner. In exchange for
compensation, the broker is believed to owe a fiduciary responsibility
to the policy owner.
- competent to sell
- Pertaining to life settlements, verification that a policy owner
and/or insured is of sound mind and therefore capable of entering into
a life settlement contract. This is generally evidenced by a signed
written statement from the insured or policy owners physician.
- complaint ratio
- A ratio sometimes used by state insurance departments to measure
consumer complaints upheld against insurance companies compared to
- conditional premium receipt
- A premium receipt that provides temporary insurance to an applicant
based on specified conditions that must be met before coverage will be
- conflict of law
- The potential that the laws of different venues might govern the
same transaction. For life settlements, this can effect a policy owners
ability to sell their policy.
- The action of an agent or insurer toward a policy owner to help
prevent a policy from lapsing, typically initiated in order to thwart a
replacement effort of an agent and/or a competing insurer.
- consumer (policy holder)
- Pertaining to life settlements, the policy owner in the form of an
individual or entity that has bought a policy and wants to sell it.
- contestable life settlement
- A life settlement that takes place during the two year contestable
period of a policy (otherwise know as a "wet paper" transaction. Many
reputable life settlement brokers avoid representing policy owners who
attempt to engage in these transactions.
- contestable or contestability period
- Generally the two year time period from the issue date of a life
insurance policy when an insurance company has a contractual right to
cancel a policy or refuse a claim under it. During this period the
insurance company may investigate the representations made within the
application for the policy as well as any representations made during
recorded interviews. After two years policies can still be cancelled,
but only for fraud or failure to pay premiums.
- contingent beneficiary
- Pertaining to life insurance, the individual/individuals, and/or
entity/entities named by the policy owner to collect the death benefit
if the primary beneficiary or beneficiaries is/are no longer living
when the insured dies.
- contingent liability
- A liability that could materialize alter date depending on the
outcome of a future event.
- contingent payee
- Pertaining to life insurance, a party designated to receive any
remaining proceeds that are still payable after the primary payee's
- contract of adhesion
- Lawfully binding agreements (such as insurance policies) that are
prepared by one party and are accepted or rejected as a whole by the
other party without any bargaining.
- contributory group insurance
- A group insurance plan that requires the insured member to pay a
portion of the cost of coverage.
- conversion or conversion privilege
- Pertaining to life insurance, a provision common to term policies
that allows the policy owner to exchange the policy (without proof of
insurability) for a more permanent form of insurance such as whole life
or universal life. Conversion must occur before a specific age or date
specified in the term policy. With regard to life settlements, terms
policies that allow for conversion are much more marketable.
- convertible or convertible term
- A term life insurance policy that contains a conversion privilege
that can still be exercised.
- Typically the required difference between a universal life
insurance policy's face amount and cash value for purposes of
determining whether the policy will be taxed as insurance or as an
- cost of insurance (COI) rates
- Pertaining to life insurance and life settlements, the pure cost of
the mortality element of a life insurance policy that reflects the
statistical probability of death at specified points in time.
- Simply another word for insurance.
- covered life
- The individual whose life is covered by a life insurance policy,
otherwise known as the insured.
- The promise to either pay later for something you received now or
in the past.
- credit enhancement
- A method of receiving more favorable borrowing terms either through
insurance such as a financial guarantee or through letters of credit
issued by a financial institution such as a bank.
- credit insurance
- Coverage for losses stemming from the failure of business debtors
to cover their obligation to an insured, typically due to insolvency.
- credit life insurance
- Life insurance that covers a borrower and is designed to pay off a
loan if the borrower dies with an outstanding balance. Generally a
debtor is required to provide little or no evidence of good health in
order to qualify, often making credit life an excellent value for
someone with a short life expectancy.
- credit rating
- An opinion of financial strength, provided by a ratings agency such
as Standard & Poor's or Moody's Investors Service.
- current assumption
- A type of life insurance policy where the face amount and/or the
cash value fluctuate according to the insurer's investment earnings.
- current charges
- Pertaining to cash value life insurance policies, the
non-guaranteed earnings, expenses, and mortality costs that are subject
to fluctuation based on the carrier's current experience.
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