LLQP key terms

A legal requirement that the person buying a policy would suffer genuine financial or emotional loss if the insured died or became disabled. It must exist when the contract is signed, not just when a claim is made.

The person or entity named in a policy to receive the death benefit. It can be revocable, letting the owner change it freely, or irrevocable, requiring the named person's consent to alter it.

The tax-free amount an insurer pays when the insured dies, normally equal to the face amount plus any paid-up additions or dividends. The beneficiary receives it outside the estate unless the estate is named.

The savings component a permanent policy builds over time, paid to the owner if the contract is cancelled. It may be reduced by surrender charges in the early years and is taxable on disposal.

Coverage purchased for a fixed period, such as 10 or 20 years, with no savings element. It pays only if the insured dies during the term, and renewal premiums rise with age.

Coverage designed to last the insured's whole lifetime, combining a death benefit with a growing cash value. Types include whole life, universal life, and variable arrangements with different premium and investment features.

The insurer's process of assessing an applicant's health, lifestyle, occupation, and family history to decide whether to issue coverage and at what premium. It may result in standard, rated, or declined offers.

Usually the first two years of a policy, during which the insurer may investigate and deny a claim for material misrepresentation on the application. After it expires, coverage generally cannot be challenged for innocent error.

The mutual duty on applicant and insurer to disclose all material facts honestly. The applicant must reveal information a reasonable underwriter would consider relevant, even when not asked directly.

A false or incomplete statement on an application that would have changed the insurer's decision to issue coverage or set the premium. It can void the contract or reduce a claim.

A short window, typically 30 or 31 days after a premium due date, during which the policy stays in force even though payment is late. A death during this period still pays, minus the overdue premium.

The termination of coverage because required premiums were not paid within the grace period. A lapsed permanent policy may still have value the owner can access.

Restoring a lapsed policy by paying overdue premiums with interest and providing evidence of insurability. The insurer may impose a new contestability period on the reinstated coverage.

Money borrowed from an insurer against a permanent policy's cash value. Interest accrues, and any unpaid balance plus interest is deducted from the death benefit or surrender value.

Choices available when a permanent policy owner stops paying premiums, such as taking the cash surrender value, reduced paid-up insurance, or extended term insurance for the original face amount.

A rider that suspends premium payments when the insured becomes totally disabled for a defined waiting period. The policy stays in force, and the insurer treats premiums as paid during the disability.

A supplementary provision added to a policy that modifies or extends coverage, often for an extra cost. Common examples include waiver of premium, accidental death, and term insurance additions.

A rider paying an additional sum, often equal to the face amount, if death results from an accident within a stated period. Exclusions typically include illness, suicide, and certain hazardous activities.

A condition defined by the contract, commonly the inability to perform the main duties of one's own occupation for an initial period and any occupation afterwards. The definition drives eligibility for benefits.

The waiting time between the start of a disability or illness and the point when benefits become payable. Longer elimination periods lower premium cost and coordinate with other income sources.

The maximum length of time disability or sickness benefits continue, such as two years or to age 65. It is distinct from the elimination period and strongly affects pricing.

Two disability definitions: own occupation pays if the insured cannot do their specific job, while any occupation pays only if unable to perform work for which they are reasonably suited by education and experience.

A partial benefit paid when the insured returns to work but earns less or works fewer hours because of the disabling condition. The payout is usually proportional to lost income.

Coverage paying a lump sum when the insured is diagnosed with a listed condition, such as cancer, heart attack, or stroke, and survives a survival period. Proceeds are not tied to actual expenses.

The number of days, often 30, that an insured must live after diagnosis of a covered critical illness before the benefit is payable. It reduces cost and rules out very short terminal cases.

Coverage that helps pay for assistance with daily living activities when the insured needs ongoing care at home or in a facility. Benefits usually begin after a functional assessment or waiting period.

Basic self-care tasks such as bathing, dressing, eating, toileting, transferring, and continence. Insurers use inability to perform a set number of them as a trigger for long-term care benefits.

An insurance contract whose value tracks underlying investments while offering guarantees, such as a minimum death benefit or maturity value. The insurer bears the guarantee risk, unlike a mutual fund.

A contract used to build savings before payout begins, with growth tax-deferred while funds remain in the plan. At annuitization the accumulated value converts into regular income payments.

A contract purchased to generate regular income, either for a fixed term or for life. Payments may be level or indexed, and options such as joint life cover a spouse.

The irrevocable conversion of an accumulated annuity value into a stream of income payments. Once elected, the decision generally cannot be reversed and the capital is no longer accessible.

A rider on a segregated fund or annuity guaranteeing income withdrawals for life based on a protected value, even if the underlying investments fall. The guaranteed base may step up periodically.

The insurer's promise to pay at least a stated percentage of deposits at death or maturity, commonly 75 to 100 percent after a set holding period. The guarantee is backed by the insurer, not the fund manager.

The court process of validating a will and settling an estate. Assets with a named beneficiary, including life policies and segregated funds, usually bypass probate and are paid directly.

The legal obligation of an advisor to act in the client's best interest, placing the client's needs ahead of personal or company gain. It includes disclosure of conflicts and suitability of advice.

The requirement to recommend products and amounts that fit a client's financial situation, objectives, time horizon, and risk tolerance, based on documented information gathered during the needs analysis.

The process of collecting and updating information about a client's finances, goals, risk tolerance, and insurance needs before advising. Accurate records support suitability and protect both parties.

Situations where an advisor's personal, financial, or company interests could compromise objective advice to a client. They must be identified and disclosed so the client can judge the recommendation.

Rules requiring insurers and advisors to verify client identity, watch for suspicious transactions, and report unusual activity. Large cash payments and unusual funding sources raise particular concern.