Risk of Death



ACB Adjusted Cost Basis

CompCorp Canadian Life and Health Insurance Association Compensation Corporation

CSV Cash Surrender Value

MIB Medical Information Bureau

NCPI Net Cost of Pure Insurance

OSFI Office of the Superintendent of Financial Institutions

UL Office of the Superintendent of Financial Institutions

ULICA Uniform Life Insurance Companies Act



Accidental Death: a provision in many insurance policies that doubles the payout if one dies from an accident instead of an illness. Also called Double Indemnity.

Account Value: of a universal life plan is the sum of the gross (before surrender charges) value of all of the investment accounts within the policy. This includes investment income and allows for the current month’s deductions and expenses.

Accumulating Fund: See Policy Reserve.

Adjusted Cost Basis (ACB): the adjusted cost basis of a life insurance policy include 13 factors (ITA 148(9)). Essentially, the ACB is the sum of the following factors:
– Premiums paid under the policy less dividends;
– Interest paid on a policy loan if it was not deductible in computing income;
– The amounts included in income from a none-exempt policy subject to the income accrual rules, less the net cost of pure insurance.

Administration Fee: every life insurance policy contains annual administration fee, usually a flat fee of between $30 to $75 for each policy that may be charged separately or included in the premiums. An administration fee is a separate charge for having an interest in a seg fund. Some seg funds charge an administration fee of $10 per month. The amount varies widely.

Age of Majority: the age at which a person is able to sign contracts, etc. This is 18 years in Ontario, Alberta, Manitoba, Prince Edward Island and Saskatchewan. In British Columbia, New Brunswick, Newfoundland, Nova Scotia, the Yukon and the Northwest Territories, the of majority is 19 years.

Agent: an individual who acts on behalf of an insurance company and collects commission on policies sold. The agent is your client’s contact with the life insurance company and can assist your client in designing a life insurance package to meet his needs.

Assignment: the legal transfer by the policy owner of the benefits of the policy. Also called Collateral Assignment.

Attained Age: the age the life insured has reached at the start of the policy year. The attained age may be based upon the life insured’s nearest or last birthday depending upon the practice of the insurance company.

Automatic Premium Loan: an option that will automatically pay any premium in default at the end of the grace period. The amount is charged against the cash surrender value as a policy loan provided the premium is not in excess of the policy’s cash surrender value on the due date of the premium.


Beneficiary: the person who is entitled to receive the death benefit upon death of the life insured.

Beneficiary of a Life Insurance Policy: the person to whom the proceeds are payable when the insured dies. The beneficiary may b a named beneficiary, who is an individual identified on the insurance policy as a beneficiary or the beneficiary may be the estate of the life insured with the name of the ultimate beneficiary being specified in the life insured’s will or trust document.

Broker: a life insurance agent who is an independent business person who may sell life insurance contracts issued by any number of insurance companies.


Canadian Life and Health Insurance Association Compensation Corporation (CompCorp): administers the insurance industry’s consumer protection plan. It is a federally incorporated private company funded by the insurance industry. CompCorp insures, within limits, Canadian policyholders against loss of benefits should a member of CompCorp become insolvent and be forced to wind up its affairs. All federally licensed and most provincially incorporated life insurers in Canada are required to be members of CompCorp.

Cash Surrender Value (CSV): the amount returned to the policy owner when a whole life insurance policy is cancelled. The cash surrender value is equal to the value of the policy reserve less any surrender charge. Also called Cash Value.

Cash Value: see Cash Surrender Value (CSV).

Child Life Insurance: a rider that provides insurance on the life of a child.

Collateral Assignment: the legal transfer by a policy owner of the benefits of the policy to a creditor as security for a debt.

Contribution: an amount of money the policy owner pays to the insurance company. Also called Deposit

Convertible: a term life policy that may be converted to a whole life form of insurance without evidence of insurability. The amount of the death benefit and the life insured must remain the same for a conversion. The premium is based on the attained age of the assured as at the time of conversion.

Cost of Insurance: in a universal life policy for the current month, is the net amount at risk multiplied by the cost of insurance factors specified in the policy for the attained age and class of life insured.

Coverage: the amount of the benefit paid upon death of the life insured. Also called Death Benefit


Date of Maturity: the date on which the insurer must pay out the face amount of the policy. The date of maturity may be the death of the life insured or a specified age such as age 100 in a term 100 policies.

Death Benefit: the amount of the benefit payable upon death of the life insured. Upon death of the life insured, the policy pays a death benefit, which is a fixed amount specified in the policy. The initial death benefit may be augmented by accumulated dividend options or other options or riders associated with the policy. The cash surrender value is not a benefit in addition to the death benefit, but rather it represents the prefunding of the death benefit. The death benefit is greater than the CSV to the extent the life insured ends before the life expectancy used in establishing the policy reserve. The CSV will never exceed the death benefit. Also called Coverage.

Decreasing Term: a form of term insurance in which the death benefit declines over all or part of the period of coverage, but the premiums remain the same. This reduction is often included to keep the premium low.

Deferred Annuity: a term or life annuity contract in which the payments do not commence until a specific date that may be based upon the annuitant’s age. The premium for the deferred annuity can be paid in a lump sum or as periodic payments.

Dependent of the Principal Life Insured: a spouse or child of the policyholder.

Dividends: on a life insurance policy is a refund of part of the premium, calculated as the excess of the actual return on the policy reserve over the guaranteed rate. It is not a share of the insurer’s profits.

Double Indemnity: see Accidental Death.


Face Value: the amount that insure will pay to beneficiaries should the insured die during the period of coverage named in the policy.

Fraud: a form of false representation made with knowledge of its falsity and the intention of inducing a person to act upon it. Usually, a misrepresentation must be flagrant and severe to be termed a fraud. An insurance contract becomes incontestable after a two-year period, except in the case of fraud.


Grace Period: a period of 31 days is allowed for payment in full of any premium due. If the insured dies during the grace period, the unpaid premium is deducted from the death benefit.

Group Insurance Contracts: where the employer or association is the owner, the employee or member is the life insured and the beneficiary is designated by the employee or member.

Group Life Insurance: a form of life insurance covering a group of persons having some common association, such as employees of the same company, members of the same profession or alumnae of a university.

Guaranteed-Issue: a form of whole life policy bought through the mail with no medical screening. Marketing is generally aimed at people in the 50 to 70 years age range who are concerned about passing the medical screening exam. The face value of Guarantee-Issue policies then to be very low which may be suitable for those who only want life insurance to cover their funeral expenses.


Income Splitting: a term used to describe strategies to save taxes by shifting income from the hands of a family member in a higher tax bracket, to the hands of a second family member in a lower tax bracket so that the same income is taxed at a lower rate.

Incontestability Clause: under this clause, the insurer gives up the right to dispute a claim after the policy has been in effect for a specified period of time. On most insurance policies, the period to time is two years.

Incontestable: after a life insurance policy has been in force for two years, the insurance company cannot declare it void because of misrepresentation or concealment by the insured. The insurance company can declare it void in the case of fraud.

Individual Contract: a contract issued to an individual directly by an insurance contract.

Insolvency: the inability to meet one’s financial obligations as they come due in the ordinary course of business.

Insurability: being able to meet an insurance company’s underwriting standards for risk including being able to meet the medical and other criteria for insurance coverage.

Insurance Contract: an agreement between the insurer and the insured that the insured agrees to pay specified premiums and the insurer agreed to pay a certain sum (all or part of the insurance money) at a certain time in the future or upon a specific occurrence.

Insured: the person who makes a contract with an insurer. This clause is interpreted to mean that it is the person who makes the contract with the insurer who is the insured (i.e., the owner). If the owner takes out a policy on life of a third party, it is the owner who is the insured, not the person whose life is insured. Therefore, it is the owner who can exercise all the rights of an insured person under the Act regardless of whose life is insured. Also called Policy owner or Policyholder.

Insurer: the company or organization that undertakes or agrees or offers to undertake a contract.

Interim Life Insurance Coverage: begins when the insurance company has received a signed application and first premium payment. The interim status expires and coverage takes effect, when the application has been approved according to the insurer’s underwriting rules and a copy of the contract has been received by the insured.

Investment Bonus: Many UL contracts offer their long-term policy owners an investment bonus of up to 1.00 to 1.50% per annum after 10 or 20 years to encourage them to keep their contracts in force. These bonuses can significantly enhance the growth performance of a policy. The policy owner must be careful to read the fine print because some of these bonuses are conditional upon the amount of premium paid to date.

Irrevocable Beneficiary: if the policy owner has signed a declaration making the beneficiary irrevocable, the designation cannot be changed without the beneficiary’s consent.


Joint Life: an insurance policy that covers two or more lives and provides for the payment of the proceeds at the death of the first insured. At this time, the policy automatically terminates and provides no further coverage for the survivors.


Last-to-die Policy: covers two or more lives and pays the death benefit upon the last death of the lives insured.

Level Death Benefit: an option that provides for a fixed amount of coverage throughout the lifetime of the policy equal to the initial face amount.

Level Death Benefit Plus Account Value: the total amount of death benefit with level death benefit plus account value is always equal to the initial face amount plus the gross value of the account value.

Level Death Benefit Plus Cumulative Deposits: the amount of death benefit with level death benefit plus cumulative deposits increases by the amount of each deposit to the policy.

Level Term Rates: fixed annual or monthly amounts, such that their present value at the date of issue of the policy equals the present value of the annual expected death benefits and operating margins less investment income of the policy. This is how term 100 premiums are calculated.

Life Expectancy: the average duration of life remaining for a person of a given age and sex. Also called remaining years expected to live.

Life Insurance: and undertaking by an insurer to pay insurance money, (a) on death; or (b) on the happening of an event or contingency dependent on human life; or (c) at a fixed or determinable future time; or (d) for a term dependent on human life, and, without restricting the generality of the foregoing, includes, (e) accidental death insurance but not accident insurance; (f) an undertaking entered into by an insurer to provide an annuity or what would be an annuity except that the periodic payments may be unequal in amount and such an undertaking shall be deemed always to have been life insurance. All common law provinces, except Saskatchewan, include annuities within the definition of life insurance.

Life Insured: the person upon whose death the benefit of the life insurance policy becomes payable.

Loan: you can borrow from the cash value of your insurance policy or use it as collateral for a loan. The amount of the loan is limited to a pre-established percentage of the cash surrender value of your policy. When the policy matures, the death benefit paid to your beneficiaries is reduced by the amount of any outstanding loans and accrued interest. See Policy Loan.


Management Fee: a charge paid to the life insurance company for managing the fund. The fee is typically of the order of 2-2.5% depending on the nature of the financial assets.

Marginal Tax Rate: the rate of tax that would be paid on an additional dollar of taxable income. The Canadian tax system uses progressive tax rates, whereby the marginal tax rate increases as taxable income increases.

Medical Information Bureau (MIB): one of the medical records agencies. It is a US-based non-profit organization with an office in Canada. The MIB consists of 750 member insurance companies in North America, including most major Canadian insurers.

Minor: a person under the age of 18 years (19 years in certain provinces). A person aged 16 years or older may purchase a life insurance contract with the same rights under the insurance contract as someone who had reached the age of majority. A person that is not legally capable of giving a discharge to the insurer, which means the insurer, will not be able to pay the proceeds to the child.

Misstatement of Age: when an applicant gives an incorrect age at the time of applying for life insurance.

Mortgage Insurance: a term insurance policy so your debt is paid off in the event you die.


Named Beneficiary: the person specified by the property owner to be given ownership of the property upon the original property owner’s death. Also called designated beneficiary.

Non-arm’s Length Person: a relative of the taxpayer including the taxpayer’s parents, grandparents, brothers, sisters, brother-in-law, sisters-in-low, children, adopted children, grandchildren and minor nieces and nephews.


Paid-up Policy: an insurance policy, which has not yet matured, but requires no further payment of premiums.

Permanent Life Insurance: a policy that provides coverage for the life of the insured. There are three forms of permanent insurance: whole life, term-100 and universal life. Each of these policies requires the payment of premiums in excess of the mortality cost and the accumulation of a fund to pay the high mortality cost in the life insured’s latter years.

Policyholder: see Insured.

Policy Illustration: a computer-generated printout that shows the anticipated outcome of the prospective life insurance plan based on certain assumptions. Also called Illustration.

Policy Reserve: the fund set aside to cover the death benefit payable under the policy. The policy reserve equals the present value of the future death payment less the present value of future premiums under the policy. The policy reserve is a pooling of the excess premiums paid by all policyholders. Also called the The Accumulating Fund.

Policy Values: include the CSV while the insured is still alive, and the death benefit upon his death.

Policy Year: the twelve-month period following the date of issue or anniversary thereof.

Premium: the single or periodical payment under a contract for insurance, and include dues, assessments, administration fees paid for the administration or servicing of such contract, and other considerations.

Premium Holiday: a feature that allows you to skip a premium, or series of premiums, provided there is sufficient cash surrender value in your policy. You should be able to resume premium payments without penalty or cost.

Premium Tax: a tax on life insurance premiums levied by the provinces as a hidden tax.


Quick Pay: an option that allows you to pay off the premiums quickly. With this option, your premium payments are divided over a small number of payments, say 10.


Rated Policy: a life insurance policy for a life insured who presents a higher than standard risk due to an occupation, hobby or health condition, and for which a higher than standard premium is charged.

Reinstatement: if the policy lapses because the premium is not paid when due or within the grace period it will be reinstated if the insurance company accepts payment of the premium without requiring a reinstatement application.

Renewable: gives the policy owner the option of renewing the policy for some predetermined period of time, usually at a higher rate of premium. A term life policy that can be renewed at the end of the term for another term usually of the same length without further proof of insurability. Regardless of the physical condition of the life insured, the premium cannot be increased due to any adverse physical condition. The insured must pay the premium rate for his attained age at the time of the renewal. Some policies specify the premiums that will be charged upon each renewal. Other permit the insurer to adjust the premiums based upon the mortality experience of lives insured under the policy. The policy may give the right to several successive renewals up to a specified age.

Reserve: see Policy Reserve.

Revocable Beneficiary: the policy owner has the right to name the beneficiary of the proceeds of the policy and can change the beneficiary at any time.

Rider: an addition to a standard policy that adds or deletes some coverage or conditions.


Settlement Options: the part of an insurance policy that specifies that the death benefit is paid in cast upon satisfactory proof of the death of the life insured. The beneficiary usually may elect to receive the death benefit in a lump sum or as an annuity paid by the insurer unless the policy owner specifically set out the form of payment in the contract.

Spousal Rollover: where the ownership of a policy is transferred to the policy owner’s spouse or common-law partner trust or to a former spouse or common-law partner in settlement of rights arising out of their relationship; or at death of the policyholder to the owner’s spouse or common-law partner or a spousal or common-law partner trust, then the proceeds of disposition are deemed to equal to the ACB of the policyholder immediately before the transfer or death and the cost to the transferee is deemed to be this same amount (ITA 148(8.1) and 148(8.2)). Consequently, any unrealized capital gains or capital losses become capital gains or capital losses of the spouse, common-laws partner or trust on a subsequent disposition.

Suicide Clause: a clause that states that if the life insured commits suicide, whether while sane or insane, within two years of the effective date of coverage, the insurer will return any premiums paid, but will not pay the death benefit.

Surrender Charge: a charge levied on the redemption of units of a seg fund as a percentage of the amount redeemed. Must UL policies have surrender charges in the event that the policy is surrendered, in whole or in part. The surrender charges are back-end charges, like deferred service charges for mutual funds, and are only applicable if the contract is surrendered before a period of years as specified in the contract. The surrender charge is deducted from the cash surrender value before the insurer releases the funds to the contract owner.


Term 100: a form of permanent insurance that matures when the insured reaches age 100 or dies, whichever comes first. Unlike whole life insurance, term 100 does not usually build up any cash surrender value, has no loan value, is not participating and does not pay dividends. As a result, the premiums for term 100 are lower than premiums for whole life. There are a few term 100 policies available, which have a cash surrender value. However, these are the exceptions, rather than the rule. The amount of CSV is less than a comparable whole life policy.

Term Life Insurance: an insurance policy that provides protection against financial loss resulting from death during a specified period of time. The policy only pays if the insured dies within the given period named in the policy. The period is usually 1 year, 10 years or 20 years, or until a specific age such as age 65. At the end of the period, the protection ceases unless it is renewed.

Third-party Contract: a contract where the insured (owner) insures the life of a third person. The three parties are thus the insured, the life insured and the insurer.

Total Disability: being unable to work at any occupation for wage or profit, and for which the insured is qualified by reason of education, training or experience.

Two-party Contract: a contract where the insured insures her own life with the insurance provider. The two parties are thus the insured and the insurer.


Underwriting: the process of examining an application for insurance, deciding whether to accept the application and determining the appropriate premiums after considering the risks associated with the applicant.

Uniform Life Insurance Act: a uniformity of law, not a statute, that governs the life insurance activities of the nine common law provinces (i.e., all provinces except Quebec).

Universal Life: a form of life insurance under which the amount of death benefit and lives insured are variable, the accumulating fund and other accounts can be invested in a variety of financial assets, and the contributions to the policy to cover the premiums are flexible.


Variable Annuity: a contract under which the annuitant receives a periodic payment for a term or for life and the amount of the payment fluctuates in accordance with the earnings of an invested amount.


Waiver of Premiums Clause: a clause that states that in the event the insured becomes totally disabled, payment of premiums are waived. The waiver of premiums option can add 10% to 15% to the policy’s premium.

Whole Life Insurance: a form of permanent life insurance, which provides protection for the whole of the insured’s life, not just for a specific term. Whole life insurance has fixed annual or monthly premium that is payable for the entire lifetime of the insured. Premiums can be paid on a continuous payment basis over the insured’s life or on any limited basis, such as a single payment or annually for 10 years. (Also referred to as straight life an ordinary life insurance.)