Glossary of Terms

Accelerated Death Benefit A policy provision or rider that lets you collect part of your death benefit before you die. If you have a terminal illness, the policy advances you a specified part of your death benefit to pay medical bills or other expenses, then the amount is subtracted from the death benefit your beneficiary receives.
Accidental Death A provision or rider that promises to pay more (usually double) if you die in an accident. Also known as double indemnity. 
Accredited Investor  As used in Regulation D, this shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

Any private business development company as defined in section 202(a)(22) of the Investment Advisors Act of 1940;

Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;

Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and

Any entity in which all of the equity owners are accredited investors.
 
Actuary A mathematics expert who applies probability theory to the business of life insurance and is responsible for calculating premiums, policy reserves and other values. 
Administrative Fee Charges some policies deduct from cash value accumulation each year. 
Annuitant A person who receives an income benefit from an annuity. 
Annuity A contract purchased through an insurance company, usually to accumulate funds that can be used after retirement. 
Assignment Giving rights under the insurance policy to someone else. You can assign beneficiary rights or policy ownership. 
Automatic Premium Loan A provision in a policy that authorizes the insurance company to use money from your cash value to pay premiums. 
Beneficiary The person you designate to be paid a death benefit when you die. A policy may have one or more beneficiaries. 
Burial Policy A policy with a relatively small death benefit, intended to cover your funeral and burial expenses. 
Cash Value The savings portion of a life policy. When your premium payments are more than the cost of insurance, the excess goes into a cash value account and draws interest. 
Certificate The evidence of coverage received by persons insured through a group life policy. 
Chronically Ill  This means (1) being unable to perform at least two  activities of daily living (i.e., eating, toileting, transferring, bathing, dressing or continence), or (2) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment, or (3) having a level of disability similar to that described in (1) as determined by the Secretary of Health and Human Services. 
CLU Charted Life Underwriter. A title that agents and other insurance professionals can achieve after taking a series of classes and passing exams. An agent with CLU after his or her name should know a lot about life insurance. 
Contestable Period In Ohio, an insurance company can challenge a life insurance policy during the first two years after issue. 
Conversion Changing a term life policy to some other form. This can be done only when the policy is described as convertible. 
Credit Life A policy intended to pay off a debt (loan for car, furniture, appliances, etc.) if you die.
Death Benefit The money that a life insurance policy promises to pay your beneficiary when you die. 
Decreasing Term A term life policy whose death benefit goes down each year. 
Dividends When a company collects more money from policyholders than is needed to cover the cost of insurance. 
Endowment A cash value policy that sets a specific time at which the cash value will equal the death benefit. If you buy a $10,000, 20-year endowment policy, you will immediately be insured for $10,000. If you are still living at the end of 20 years, you will receive $10,000 in cash. 
Escrow Agent  means a state or federally regulated financial institution organized under the laws of the United States or any state, whose responsibilities include accepting investor funds, transferring funds in order to purchase policies, paying insurance premiums and receiving death benefits for all policies where Viatical Investors are not the beneficiaries.
Face Amount The sum a policy promises to pay when the insured person dies, or at the maturity of the contract. 
Family History Information about medical or mental problems of your parents and other family members. Companies may charge you higher premiums or reject you if your family has a history of cancer, heart attacks, or such diseases as Huntington's. 
Financing Entity  An underwriter, placement agent, lender, purchaser of securities, purchaser of a policy or certificate from a Provider, credit enhancer, or any entity that has a direct ownership in a policy or certificate that is the subject of a Sales Contract, but:

1.      whose principal activity related to the transaction is providing funds to effect the Life settlement or purchase of one or more policies: and

2.      who has an agreement in writing with one or more Providers to finance the acquisitions of Sales Contracts.

Financing Entity does not include a non-accredited investor or Purchaser.
 
Financing Transaction  A transaction in which a licensed Provider obtains financing from a Financing Entity including, without limitation, any secured or unsecured financing, any securitization transaction, or any securities offering which either is registered or exempt from registration under federal and state securities law.  
First to Die Provision in a policy that insures both husband and wife. When the first spouse dies, the survivor collects the full death benefit. 
Fraud Any time you knowingly provide false or incomplete information on an application for insurance or on a claim. 
Free Look A time after you receive the policy for you to review and consider whether it is what you want. 
Genetic Testing Using modern scientific analysis of your blood to determine whether you have any genetic defects that might make it more likely that you would die earlier than the average person. Ohio permits insurance companies to use the results of genetic testing for life insurance policies, but only a few companies require genetic testing. 
Grace Period The time after an insurance premium is due during which the premium can still be paid with no interest charged, and coverage remains in force. This period is usually 30 to 31 days. 
Group Life A policy issued to an employer, association, or other organization. 
Guaranteed Issue A policy that is sold to all applicants without regard to their health. 
Guaranteed Rate The only interest amount that the insurance company promises to pay on any cash value in the policy. 
In Force A policy is in force when all conditions have been met to establish or maintain the company's obligation to pay if you die. 
Insurable Interest In order to be the owner and beneficiary of a life insurance policy, there must be some relationship to the insured person. 
Insured This term means the person covered under the policy being considered for viatification.    (from NCOIL definitions) 
Lapse The termination of an insurance policy as a result of failure to pay the premium. 
Life Expectancy  The number of months the individual insured under the life insurance policy to be viaticated can be expected to live as determined by the viatical settlement provider considering medical records and appropriate experiential data.     (from NCOIL definitions)
Life Settlement  A financial transaction in which a policy owner possessing an unneeded or unwanted life insurance policy sells the policy to a third party for more than the cash value offered by the life insurance company. The purchaser becomes the new beneficiary of the policy at maturation and is responsible for all subsequent premium payments.
Life Settlement Market Place  Life Settlement, Viatical/Life Settlement Broker, Viatical/Life Settlement Provider, Net Death Benefit, Life Expectancy, Owner, Insured, Purchase Agreement, Sales Contract, Financing Entities, Financing Transaction, Special Purpose Entity, Related Provider Trust, Secondary Markets, Accredited Investor, Qualified Institutional Buyer 
Loan If your policy has accumulated cash value, you may borrow part of it. Interest rates are generally better than bank rates. The amount you borrowed will be deducted from your death benefit until you have repaid it. 
Mortality Charge The cost of insuring you at your current age. 
Net Death Benefit The amount of the life insurance policy or certificate to be viaticated less any outstanding debts or liens.
Nonforfeiture If you cancel a cash value policy after several years, the company is required to refund part of the cash value. 
Outlay The amount you pay the insurance company for insurance (same as premium). 
Owner  This term means the Owner of a life insurance policy or a certificate holder under a group policy.  The term "Owner" does not include any Provider or other licensee.    (from NAIC definitions) 
Paid-Up A policy on which all premium payments have been made. 
Participating Policy A policy that has the possibility of paying dividends. 
Policy Owner The person who contracts with an insurance company for a life insurance policy. The owner of the policy has the right to designate beneficiaries. 
Preferred Rate The rate the company charges people who have the lowest risks. 
Purchase Agreement  A Contract or agreement entered into by a Provider with a Purchaser, to which the Owner is not a party, to purchase a policy or an interest in a life insurance policy, or acquire a beneficial interest, or a certificate issued pursuant to a group life insurance policy. 
Qualified Institutional Buyer  As used in rule 144A, this shall mean any of the following entities, acting for its own account or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity:

Any insurance company as defined in section 2(a)(13) of the Act;

Any investment company registered under the Investment Company Act or any business development company as defined in section 2(a)(48) of that Act;

Any Small Business Investment company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958;

Any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees;

Any employee benefit plan within the meaning of title I of the Employee Retirement Income Security Act of 1974;

Any trust fund whose trustee is a bank or trust company and whose participants are exclusively plans of the types identified in paragraph (a)(I)(i)(D) or (E) of this section, except trust funds that include as participants individual retirement accounts or H.R. 10 plans;

Any business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

Any organization described in section 501(c) (3) of the Internal Revenue Code, corporation (other than a bank as defined in section 3(a)(2) of the Act or a savings and loan association or other institution referenced in section 3(a)(5)(A) of the Act or a foreign bank or savings and loan association or equivalent institution), partnership, or Massachusetts or similar business trust; and

Any investment adviser registered under the Investment Advisers Act.

Any dealer registered pursuant to section 15 of the Exchange Act, acting for its own account of the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $10 million of securities of issuers that are not affiliated with the dealer, Provided, That securities constituting the whole or a part of an unsold allotment to or subscription by a dealer as a participant in a public offering shall not be deemed to be owned by such dealer;

Any dealer registered pursuant to section 15 of the Exchange Act acting in a riskless principal transaction on behalf of a qualified institutional buyer;

Any investment company registered under the Investment Company Act, acting for its own account or for the accounts of other qualified institutional buyers, that is part of a family of investment companies which own in the aggregate at least $100 million in securities of issuers, other than issuers that are affiliated with the investment company or are part of such family of investment companies.  Family of investment companies means any two or more investment companies registered under the Investment Company Act, except for a unit investment trust whose assets consist solely of shares of one or more registered investment companies, that have the same investment adviser (or, in the case of unit investment trusts, the same depositor), Provided That, for purposes of this section:

Each series of a series company (as defined in rule 18f-2 under the Investment Company Act) shall be deemed to be a separate investment company; and

Investment companies shall be deemed to have the same adviser (or depositor) if their advisers (or depositors) are majority-owned subsidiaries of the same parent, or if one investment company’s adviser (or depositor) is a majority-owned subsidiary of the other investment company’s adviser (or depositor);

Any entity, all of the equity owners of which are qualified institutional buyers, acting for its own account or the accounts of other qualified institutional buyers; and

Any bank as defined in section 3(a)(2) of the Act, any savings and loan association or other institution as referenced in section 3(a)(5)(A) of the Act, or any foreign bank or savings and loan association or equivalent institution, acting for its own account or the accounts of other qualified institutional buyers, that in the aggregate owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with it and that has an audited net worth of a least $25 million as demonstrated in its latest annual financial statements, as of a date not more than 16 months preceding the date of the sale under the  Rule in the case of a U.S. bank or savings and loan association, and not more than 18 months preceding such date of sale for a foreign bank or savings and loan association or equivalent institution.

 
Reinstatement Period Restoration of a policy that has lapsed due to non-payment of premium after the grace period has ended. The reinstatement period in life insurance is 3 years from the premium due date. 
Related Provider Trust  A titling trust or other trust established by a licensed Provider or a Financing Entity for the sole purpose of holding ownership or beneficial interest in purchased policies in connection with a Financing Transaction.  In order to qualify as a Provider Trust, the trust must have a written agreement with the licensed Provider under which the licensed Provider is responsible for ensuring compliance with all statutory and regulatory requirements and under which the trust agrees to make all records and files relating to life settlement transactions available to the Department of Insurance as if those records and files were maintained directly by the licensed Provider. 
Renewable Term A term life policy that guarantees you the right to renew at the end of the term. 
Replacement An insurance agent replaces your policy when he sells you a policy to take the place of one you already have. Ohio law requires you to sign replacement forms whenever money from one policy is used to buy or fund another policy. If the new policy is with a different company, the agent must notify your old company. The old company then has a chance to persuade you not to switch. 
Rider An addition or amendment to an insurance policy. 
Risk The likelihood that you will die while insured. 
Risk Factor Things about you that affect your risk, such as age, smoking, hazardous occupation, or a family history of heart disease. 
Sales Contract  This is a written agreement entered into between a Provider and an Owner, the subject of which is a Life Settlement.  Sales Contract also includes a written agreement for a loan or other lending transaction, secured primarily by an individual or a group life insurance policy, other than a loan by a life insurance company pursuant to the terms of the Sales Contract, or a loan secured by the cash value of a policy.   
Secondary Markets  These markets do not include a “Provider”, a “Purchaser”, a “Financing Entity”, or a “Special Purpose Entity”, but rather does include any Person who is a qualified institutional buyer or accredited investor (as defined, respectively, in Rule 144A or Regulation D, Rule 501, promulgated under the Securities Act of 1933, as amended.) (from General Rules and Regulations promulgated under the Securities Act of 1933) 
Settlement Option How a beneficiary receives payment of the death benefit. 
Special Purpose Entity  A corporation, limited liability company, or other similar entity formed solely to provide either directly or indirectly access to institutional capital markets to a Financing Entity or Provider.  
Suicide Clause A life insurance policy will not pay a death benefit if you commit suicide within the first two years after you buy the policy. 
Surrender Charge If you surrender an annuity or life policy prematurely, the company may deduct a fee from the amount it owes you. 
Term Life The simplest form of life insurance, it generally offers no cash value feature. You pay a premium and the company promises to pay your beneficiary if you die. 
Terminally Ill  Having an illness or sickness that can reasonably be expected to result in death in twenty-four (24) months or less.
Underwriting The insurance company's process for determining whom it will insure. 
Universal Life A flexible-premium life insurance contract that accumulates values and pays a death benefit. You choose the policy's premium and face amount, and you can adjust these as long as the policy is in effect. 
Variable Life A type of whole life insurance in which the face amount and cash value rely on the investment performance of a special fund. Reserves are placed in investment accounts that are separate from the company's general account. 
Viatical Market Place  Viatical Settlement, Viatical/Life Settlement Broker, Viatical/Life Settlement Provider, Viaticals, Viaticate, Viator, Accelerated Death Benefit, Net Death Benefit, Life Expectancy, Terminally Ill, Chronically Ill, Owner, Insured, Purchase Agreement, Sales Contract, Financing Entities, Financing Transaction, Special Purpose Entity, Related Provider Trust, Secondary Markets, Accredited Investor, Qualified Institutional Buyer 
Viatical or Life Settlement Investment  This means the contractual right to receive any portion of the death benefit or ownership of a life insurance policy or certificate, for consideration that is less than the expected death benefit of the life insurance policy or certificate.  Viatical Investment does not include: any transaction between a viator and a viatical settlement provider; any transfer of ownership and/or beneficial interest in a life insurance policy from a viatical settlement provider to another viatical settlement provider or to any legal entity formed solely for the purpose of holding ownership and/or beneficial interest in a life insurance policy or policies; the bona fide assignment of a life insurance policy to a bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan; or the exercise of accelerated benefits pursuant to the terms of a life insurance policy issued in accordance with the insurance laws of your state. 

The definition of Viatical Investment is intended to include transactions in life insurance policies regardless of the age or health of the insured.  [Some states may have adopted insurance laws to limit the scope of coverage to insureds who are terminally or chronically ill.]

 
Viatical or Life Settlement Provider/Issuer This means, in the case of a fractional interest in Viatical Investments, any person who creates, for the purpose of sale, the fractional interest, and in the case of a viatical investment that is not fractionalized, any person engaged in the business of effecting transactions in Viatical Investments to which the viator is not a party.  Viatical Issuer does not include a broker-dealer, an agent of any person who sells a Viatical Investment to no more than one natural person in a calendar year.
Viatical or Life Settlement Purchaser/Investor  This means any person who purchases or subscribes to purchase a Viatical Investment. 
Viatical Settlement (from the Latin "Viaticum" (vi-at-i-kum), historically, an allowance for traveling expenses or provisions for a journey.)  n.  Historically, the proceeds from the sale of a life insurance policy to a third party by a terminally ill individual.

The term today covers the sale by persons who are not terminally ill.  Today the term also refers to the sale by a policy owner who may not be the insured individual.  This could be a corporation or another family member.
Viatical Settlement Broker  This means a person who, on behalf of an Owner and for a fee, commission or other valuable consideration, offers or attempts to negotiate Sales Contracts, between an Owner and one or more Providers, the subject of which is a Life Settlement.  A broker represents only the Owners and owes a fiduciary duty to the Owner to act according to the Owners instructions, notwithstanding the manner in which the Broker is compensated.  A Broker does not include an attorney, certified public accountant or financial planner retained in the type of practice customarily performed in their professional capacity to represent the Owner whose compensation is not paid directly or indirectly by the Provider.    (From NCOIL Definitions)
Viatical Settlement Provider  This means a Person, other than an Owner, who enters into or effectuates a Sales Contract with an Owner, the subject of which is a Life Settlement.  A Provider does not include:

a.  any bank, savings bank, savings and loan association, credit union or other licensed institution which takes an assignment of a life insurance policy or certificate issued pursuant to a group life insurance policy as collateral for a loan;

b.  any natural Person who enters into no more than one agreement in a calendar year for the transfer of a life insurance policy, for compensation or anything of value less than the expected death benefit payable under the policy;

c.  a Purchaser;

d.  or any authorized or eligible insurer that provides stop loss coverage to a Provider;

e.  a Financial Entity;

 f.  a Special Purpose Entity;

g.  a Related Provider Trust;

h.  a Broker.    

(From NCOIL definitions)
Viaticals A general term referring to transactions in the viatical settlement marketplace.
Viaticate (vi-at-i-kate) (Historically, to furnish with the provisions necessary for a journey.)  v.  To sell a life insurance policy to a third party when the insured is terminally ill.
Viator (vi'-a-tor) n.  A terminally ill person who sells his or her life insurance policy to a third party and receives a lump sum cash payment.  (From NAIC definitions)
Waiver of Premium A provision that suspends your obligation to pay premiums when you are disabled or you meet some other policy requirement. This is a common feature in life insurance polices. 
Whole Life Life insurance with a savings feature. Premiums generally are the same (level) every year. When you are young, your premiums are more than the cost of insuring your life at that time. The excess amount accumulates and resembles a savings account, called cash value. This excess is used by the company to insure you later in life, when your level premium is no longer enough to cover you.