LIFE SETTLEMENT GLOSSARY EXAMPLE

M

material fact

A fact that is important to an insurance company's underwriting process and helps them determine whether or not a proposed insured is eligible for coverage and, if so, on what basis.

material misrepresentation

A pertinent misstatement of fact by an insurance applicant that causes an insurance company to issue a policy that would have otherwise been declined or issued on a less favorable basis had the real fact been known.

maturity date

The point in a life insurance policy when all accrued policy benefits are paid regardless of whether or not the insured is still living. This date can sometimes be extended by a deferral provision.

maturity of policy

When a life insurance policy pays out benefits, either as a death claim or when all accrued policy benefits are paid while the insured is still living, unless extended by a maturity provision.

McCarran-Ferguson Act

A 1945 Federal law designating that individual states would continue to regulate the insurance industry.

mediation

A non-binding procedure where an unbiased third party attempts to resolve a disagreement between two other parties.

Medicaid

A 1965 state-managed federal/state public assistance program for people who lack sufficient income and/or resources to pay for medical care.

Medical Information Bureau (MIB)

An independent entity that collects and stores medical information on life and health insurance applicants in ordered to help insurance companies prevent fraud by discovering withheld information.

medical underwriter

An individual or company that reviews personal and medical information either for the purpose of evaluating new risks for life insurance or for the purpose of creating life expectancy estimates for the life settlement of existing policies.

minimum deposit policy

Typically, an outdated loan strategy for cash value life Insurance policies whereby four of the first seven years of premiums were paid in cash with all subsequent premiums and net interest covered by policy loans against the growing cash value. Because the technique is dependent of the deductibility of policy loan interest it is no longer variable under current tax law. Furthermore, policies with large existing loans are now more likely to be subject to phantom income if they lapse before maturing as a death claim.

minimum premiums

The minimum amount of premium that may be can be paid and still maintain a life insurance policy.

misrepresentation

Falsifying facts to an insurance company in order to receive insurance that would not have otherwise been issued or to receive a policy that would have been issued under less favorable terms had the truth been told.

misstatement of age or sex

Inaccurately stating the birth date or gender of the insured on a life insurance application either by accident or intentionally to receive a more favorable rate. Upon death, cash surrender, or policy maturity insurance companies are entitled by contract to adjust payments to the level commensurate to what the actual premium paid would have produced under the correct rating assumptions.

modal premium

The amount payable to the insurance company based upon the premium frequency selected such as monthly, quarterly, semi-annually, or annually.

modified endowment contract (MEC)

An irreversible, negative tax consequence resulting from the payment of excessive premiums into an universal or adjustable life insurance policy.

modified premium life insurance

An insurance policy for which the policy holder first pays a lower premium than she would for a alike level premium policy for a specified initial period and then pays a higher premium than she would for a alike level premium policy. Contrast with level premium policies and single premium policies.

monophony

A selling limitation placed on the purchaser of a product whereby they are limited to only reselling the product back to the original vendor.

monthly anniversary

For flexible premium life insurance policies, the dates measured in monthly intervals from the initial policy date, upon which ongoing policy calculations for expenses and credits occur.

monthly deduction

The expense deductions that occur on the monthly anniversary dates.

moral hazard

The risk an applicant will act dishonestly in an insurance transaction.

morbidity

A basic factor in calculating insurance rates based on the probability a person belonging to a particular group will be effected by a disease, illness, injury, or sickness.

morbidity rate

The rate at which sickness, injury, and failure of health occurs for a specifically defined group of people.

morbidity table

A table that indicates the probability of sickness, injury, and failure of health among given groups of people categorized by age.

mortality cost or mortality charge

An unbundled element of a universal life policy that represents the pure cost of insurance based on the net amount at risk under the policy along, the insured's risk classification, and the insured's current age.

mortality curve

A line graph that indicates annual deaths, cumulative deaths, and the probability of survival on a year by year basis.

mortality rate

The probability of death occurring on a year by year basis among a defined group of people.

mortality table

A statistical table used by insurance companies, pension funds, and the IRS to estimate the probability of death within a certain group on a year by year and cumulative basis.

mortgage insurance

A type of decreasing term life insurance designed to protect against the premature death of a borrower. Death benefits are sometime typically tailored to match the amortization schedule of the most common loan terms.

mutual holding company

A business entity that allows mutual life insurance companies to access capital markets in a manner similar to stock companies while still retaining the policyholder ownership structure of a mutual insurance company.

mutual insurance company

A policyholder owned life insurance company that returns a portion of its profits to its policyholders in the form of dividends that can be used to enhance benefits or reduce outlays.

mutualization

The process of changing from a stock life insurance company to a mutual (policyholder owned) life insurance company.