Life Settlement Glossary

S

sales contract

For life settlement, typically the written agreement between a life settlement provider and a policyowner agreeing to the terms of a life settlement transaction.

sales illustration

A regulatory approved, explanatory representation of the cost elements and mechanics of a proposed insurance product, presented by an agent to a potential customer.

schedule

A list of everything covered under one policy, often including a description of benefits, charges, credits, assets, or other items.

seasoned paper

For life settlement, a policy that is at least two years old and therefore past the contestability period. Participating in the sale of unseasoned "wet paper" policies is generally considered to be unethical under current life settlement standards of practice.

second insured rider

A rider that can be attached to life insurance policy in order to provide additional coverage on someone other than the primary insured.

secondary guarantee

A provision or rider that, subject to payment of minimum premiums at required times, guarantees to keep a universal life insurance policy in force that would otherwise lapse due to insufficient cash value.

secondary market

Otherwise known as the life settlement market, the process and players supporting life settlement transactions, primarily driven by the factors of supply and demand, life expectancies, and the buyers required rate of return on their life settlement investment.

section 1035 exchange

The tax free exchange of one life insurance policy for another under the terms of section 1035 of the Internal Revenue Code.

securitization

For life settlement, securities that are backed by a diversified portfolio of life settlement policies.

securitization of insurance risk

The use of capital markets to raise money from third party investors in order to diversify the assumption of insurance risk.

sell life insurance

Another term for a life settlement transaction.

sell life insurance policy

Another term for a life settlement transaction.

selling life insurance policy

The act of engaging in alife settlement transaction.

senior life settlement

A transaction whereby a buyer purchases from the owner the rights to an unwanted life insurance policy for a sum of money that is greater than the cash surrender value of the policy but less than the death benefit. Since these transaction are typical available to individuals with a life expectancy of under 15 years, the term senior applies to the demographic most often eligible.

senior life settlements

Life settlements that pertain to the primary market of senior citizens.

senior settlement

A transaction whereby a buyer purchases from the owner the rights to an unwanted life insurance policy for a sum of money that is greater than the cash surrender value of the policy but less than the death benefit. Since these transaction are typical available to individuals with a life expectancy of under 15 years, the term senior applies to the demographic most often eligible.

senior settlements

Life settlements that pertain to the primary market of senior citizens.

separate account

A life insurance company investment account that is maintained separately from the general account in order to manage funds placed in variable insurance products.

servicing agency

An independent entity that performs support functions for the buyers of life settlement policies, such as paying premiums, gathering information on matured policies, updating medical records, and maintaining contact to confirm the whereabouts of insured's.

settlement option

The choices for disbursement of proceeds available to the policyowner or beneficiaries of life insurance policies.

simultaneous death act

A law that assumes the beneficiary is presumed to have died first when they and the insured died under conditions that made it impossible to determine the exact order of death, unless there is a policy provision to the contrary.

single premium annuity

An annuity that is purchased with a one time single premium.

single premium life insurance

An life insurance policy that is purchased with a one time single premium.

sole proprietorship insurance

Life insurance covering the sole owner of a business.

solvency

For life insurance, companies that have the financial wherewithal to cover their obligations to policyholders and creditors.

special purpose entity

An entity formed to facilitate access to institutional capital markets for a life settlement provider or financing entity.

spendthrift trust clause

A provision that protects payouts from a beneficiary's creditors.

Spin Life

An unethical and sometimes illegal practice of enticing seniors to buy and then immediately transfer or spin off a life policy to an investors in exchange for an up front cash payment.

split-dollar life insurance

A method of sharing the premium cost of life insurance policy between an employer and an employee.

spouse and children's insurance rider

A life insurance policy rider that can be added to a permanent policy to provide term coverage on the insured's spouse and children.

SRO

A self regulatory organization is an organization of member companies formed to provide some degree of regulatory authority over an industry or profession.

standard premium rate

The life insurance rate that applies to an insured who has been classified as a standard risk.

standard risk class

The basic life insurance risk class that applies to a group of insured's with a median life expectancy. All other risk classes are derived from the standard class.

statutory accounting principles (SAP)

A conservative accounting standard fixed by state laws to determine the present solvency of insurance firms.

stock insurance company

A life insurance company that is owned by its stockholders as compared to a mutual insurance company that is owned by its policyholders.

straight life annuity

An annuity that provides periodic income payments for as long as the annuitant lives.

stranger originated life insurance (STOLI)

An unethical and sometimes illegal practice of allowing a third party who lacks an insurable interest to acquire or immediately received ownership of a life insurance policy on a senior in exchange for an up front cash payment or other financial inducement.

structured settlement

A legal agreement that makes disbursements to a designated person in the form of a series of periodic payments instead of a single lump sum payment.

subrogation

The legal process an insurance company uses to recover its loss from another party who is legally liable for it.

substandard premium rate

The life insurance premium rate derived from a table corresponding to incremental multiples of standard rates.

substandard risk class

The other end of the spectrum from a preferred risk, a rated policy is issued at a higher rate based on the life insurance company's perception the insured will experience a life expectancy under the median for a group of insured's.

successor owner

An individual or entity designated to become the owner of a life insurance policy if the owner predeceases the insured.

suicide clause

A clause that excludes a life insurance company from paying claim resulting from the for the suicidal death of the insured during a specified time frame, typically within two years of the policy's issue date.

supplemental coverage

Additional coverage that is payable above and beyond the basic policy benefits.

supplemental executive retirement plan (SERP)

A nonqualified deferred compensation retirement plan created to provide additional benefits to a group of executives, without consideration of benefits provided under a qualified retirement plan.

supplemental group term life insurance

Additional term insurance death benefits that apply over and above the basic group coverage and typically paid for the group member instead of the employer.

surety bond

A contract the guarantees the performance of a certain obligation.

surrender charge

A charge typically applicable to universal life type policies and levied against the cash surrender value to determine if the policy will remain in force, or in conjunction with a policy withdrawal or surrender, or in conjunction with a death benefit reduction.

surrender cost comparison index

An index used to compare life insurance policy costs by taking account the time value of money over 10 and 20 year periods, assuming the policy owner surrenders the policy for its cash value.

surrender value

The amount available for the cash surrender of a life insurance policy before the deduction of any outstanding loan balances.

survivorship life insurance

A life insurance policy covering two lives with death benefit proceeds payable when both live have ended.

synthetic markets

An artificial market currently emerging in the life settlement industry - where time, value at risk, costs of capital, models, simulations, derivatives are used to help assess returns.