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Termination of a policy because of failure to pay the premium. A policy lapses at the end of its grace period. For example, if you forget to pay your Whole Life premium when due, there is usually a 30 day grace period, during which time coverage continues until the policy lapses.

Law of Large Numbers

An insurance company bases its rates on a homogeneous group. Risks are not usually considered insurable unless the insurer has a large enough base of previous loss experience to be able to accurately project future losses. It is the Law of Large Numbers that makes accurate predictions of similar risks possible.

Legal Reserve

The amount required as a reserve, to pay claims and benefits, as prescribed by state law as administered by the Insurance Commissioner. Insurance companies must file annual financial reports with the Commissioner proving their “solvency.”

Level Premium Insurance

Life insurance, the premium for which remains at the same level (amount) throughout the life of the policy. For example, on traditional Whole Life, the premium is based upon the insured’s original age and it will never change.

Level Term Insurance

The amount of insurance protection in a Term policy remains constant during the policy period, which could be 5 years, 10, 20 or even to age 65. For example, on a five year Level Term Life insurance policy the face amount and the premium would remain level for five years. At renewal at the end of the fifth year, premiums would increase based upon the next five year average age, but the face amount would remain the same. Remember, Term has no cash value and will eventually expire. To be covered, you must die in the term. The word “term” means time. Term insurance is considered to be “temporary.”


Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary (money-related) sense.

Liability Insurance

Insures the individual for financial losses that may arise out of the person’s responsibilities to others imposed by law or contract.

Life Annuity

An Annuity that provides a periodic income to the annuitant during his/her lifetime. A straight Life Annuity has no beneficiary and is considered to be the most risky type of annuity. The annuitant is betting that he/she will live a long time, but the insurer is betting he/she is going to die. Remember, annuities are the opposite of life insurance! Annuities are not subject to underwriting, since there is no insurance protection.

Life Annuity with Installments Certain (Life Income with Period Certain)

An annuitant will receive payments for a specified number of years (such as 10) or for the rest of his/her life, whichever is longer. If the annuitant dies before all the guaranteed payments have been made, the beneficiary receives the payments for the rest of the period certain. The period certain is designed to eliminate some of the risk, but the longer the period certain is, the lower the annuitant’s monthly payments will be!

Life Income Option

A settlement option that provides payments during the entire life of the payee. There are four annuity pay out options to choose from: straight life income, refund annuity, life income certain and joint and survivor life income.