Core Life Insurance Terms
Accelerated Death Benefit (ADB) A feature that allows the policyholder to access a portion of the death benefit early if diagnosed with a qualifying terminal or chronic illness.
Actuary A professional who uses statistics and risk analysis to price insurance policies and determine reserves.
Annuitization The process of converting a lump sum (like cash value) into a stream of income payments.
Assignment Transferring ownership rights or policy benefits to another party (often used for collateral).
Beneficiary The person or entity designated to receive the death benefit when the insured passes away.
Cash Value The savings component of a permanent life insurance policy that grows over time and can be accessed.
Convertible Term Insurance A term policy that can be converted into a permanent policy without new underwriting.
Cost of Insurance (COI) The internal charge in a policy that covers the insurer’s risk and administrative costs.
Death Benefit The amount paid to beneficiaries upon the insured’s death.
Dividend A return of excess premium from a participating policy (not guaranteed), often used to purchase additional coverage or reduce premiums.
Face Amount (Face Value) The original death benefit amount stated in the policy.
Free Look Period A set period (typically 10–30 days) after purchase during which the policy can be canceled for a full refund.
Grace Period A period after a missed premium payment during which coverage remains in force.
Guaranteed Issue A policy that does not require medical underwriting and guarantees acceptance (usually with limitations).
Illustration A projection showing how a life insurance policy might perform over time based on assumptions.
Insurable Interest A requirement that the policy owner would suffer a financial loss if the insured dies.
Insured The person whose life is covered by the policy.
Lapse Termination of a policy due to nonpayment of premiums or insufficient cash value.
Policy Loan Borrowing against the cash value of a policy. Loans are not considered taxable income if structured properly, but they reduce policy performance if unmanaged.
Maturity Date The date at which the policy ends or pays out its cash value if the insured is still alive.
Mortality Charge The cost associated with the risk of the insured’s death, built into the policy pricing.
Nonforfeiture Options Options available if a policy is surrendered or lapses (e.g., reduced paid-up insurance, extended term).
Overfunding Paying more into a policy than the minimum required, often to maximize cash value growth.
Paid-Up Insurance A policy that no longer requires premiums but remains in force, usually with a reduced benefit.
Participating Policy A policy eligible to receive dividends from the insurer.
Premium The payment made to keep the policy active.
Rider An add-on to a policy that provides additional benefits or customization.
Surrender Value The amount received if the policy is canceled before death, after fees.
Term Life Insurance Coverage for a specified period with no cash value.
Underwriting The process of evaluating risk to determine eligibility and pricing.
Universal Life (UL) A flexible permanent policy with adjustable premiums and death benefits.
Indexed Universal Life (IUL) A type of UL where cash value growth is tied to a market index, subject to caps and floors.
Whole Life Insurance A permanent policy with fixed premiums and guaranteed growth.
Flexmethod® Terms & Concepts
Flex Design A customized life insurance structure designed to optimize cash value accumulation, access, and long-term efficiency based on a client’s specific goals.
The Flexmethod® A planning methodology that uses properly structured life insurance as a financial tool for liquidity, optionality, and long-term capital efficiency.
Structured Overfunding A disciplined approach to funding a policy above minimum premiums—within compliance limits—to accelerate early cash value growth.
Modified Endowment Contract (MEC) A policy that has been overfunded beyond IRS limits. MEC status changes the tax treatment of distributions (loans/withdrawals become taxable and potentially penalized).
MEC Limit The maximum amount of premium that can be paid into a policy without triggering MEC status.
Corridor The required difference between cash value and death benefit set by the IRS to maintain favorable tax treatment.
Cash Value Efficiency A measure of how effectively premium dollars convert into accessible cash value over time.
Liquidity Window The point in time when sufficient cash value is available to begin accessing funds from the policy.
Policy Optimization The process of structuring and managing a policy to balance growth, cost, and access over time.
Accumulation Phase The early years of a policy focused on building cash value through premium contributions.
Income Phase (Distribution Phase) The period when the policy is used to generate supplemental income through loans and/or withdrawals.
Policy Stress Test An analysis of how a policy performs under different scenarios (e.g., lower interest crediting, higher costs, extended distributions).
Loan Strategy The structured use of policy loans to access cash value while keeping the policy in force.
Loan Arbitrage (Positive vs. Negative) The difference between the loan interest rate and the credited rate within the policy.
Policy Sustainability The ability of a policy to remain in force throughout life while supporting projected distributions.
Sequence of Returns Risk (Insurance Context) The risk that poor early performance combined with distributions could negatively impact long-term policy sustainability.
Flexible Premium Strategy The ability to adjust contributions over time based on cash flow and policy performance.
Early Cash Value Design A structure that prioritizes higher liquidity in the early years of the policy.
Long-Term Income Design A structure that prioritizes maximum long-term distribution potential over early liquidity.
Corporate Flex An application of the Flexmethod® within a business, used for balance sheet optimization, executive benefits, or retention strategies.
Key Person Flex A structure designed to protect a business from the financial loss of a critical employee or owner.
Executive Bonus (Flex-Based) A strategy where a company funds a policy for an employee as a bonus, often aligned with retention goals.
Golden Handcuff Design A structure that incentivizes long-term retention by tying benefits to continued employment.
Policy Review (Flex Review) An ongoing evaluation to ensure the policy remains aligned with original assumptions and goals.
Compliance-Aligned Language (Flexmethod® Context)
Projected / Illustrated Values Values shown in an illustration that are not guaranteed and based on current assumptions.
Non-Guaranteed Elements Portions of a policy’s performance that can change (e.g., interest crediting rates, dividends).
Assumed Rate The rate used in an illustration to project future performance—it is not a promise.
Simulated Income Income shown in a design based on assumptions; should be described as potential, not guaranteed.