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ABSOLUTE ASSIGNMENT – The document that transfers ownership of a policy to a new owner. When this document is used it also changes the beneficiary designation to the new owner.

ACCIDENTAL DEATH BENEFIT (ADB) – In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits. This benefit rider is also referred to as Double Indemnity.

ACCUMULATION PHASE – The period of the contract during which cash value is accumulated through premium payments and investment return.

ACCUMULATED VALUE – On Universal Life, Variable Universal Life and Variable Annuity & Fixed Premium Annuity policies, the total amount of policy cash value before removal of the surrender charge.

ACTUARY – A mathematician who calculates premiums, reserves, dividends, and insurance, pension, and annuity rates, using risk factors obtained from experience tables. These tables are based both on the company’s history of insurance claims and other industry and general statistical data.

ACQUISITION COST – The cost of placing new business. It typically includes Financial Representative commissions, fees for medical and credit reports, underwriting, marketing, and other administrative expenses.

ACQUISITION EXPENSES – Expenses incurred by an insurance company in acquiring new business. The expenses include the costs of commissions, underwriting, medical examinations, administrative and general sales support. These expenses typically exceed the amount of the first year’s premium.

ADDITIONS / PAID UP ADDITIONS / ADDITIONAL PAID UP INSURANCE (ADDS) – Paid up insurance purchased by dividends. Also refers to additions purchased separately in an Adds rider.

ADDITIONS RIDER / ADDS RIDER – Additional paid up insurance purchased over and above dividend additions.

ADMINISTRATIVE FEE – Usually a fixed-dollar amount per year, used to pay for record keeping and policy reports.

ADVERSE SELECTION – The tendency of persons with poorer-than-average health expectations to apply for or continue insurance coverage to a greater extent than persons with average or better-than-average health expectations.

AGENCY OF RECORD – The current servicing agency.

AGENT - Individual who sells and services insurance policies in either of two classifications:

1. Independent agent has the ability to represent multiple insurance companies and services clients by searching the market for the most advantageous price for the most coverage.
2. Direct or career agent represents only one company and sells only its policies.

AMERICAN COUNCIL OF LIFE INSURERS (ACLI) – Located in Washington, DC, it is an association of both participating and non-participating life insurers who are concerned with issues that affect the life insurance industry on the federal, state, or local level. It lobbies on behalf of the industry and the information it compiles is available to the public.

AMORTIZATION – An accounting procedure that accounts for depreciation by gradually reducing the cost value of an asset through periodic charges to income.

AMOUNT-AT-RISK – The insurance company’s death claim risk on a policy at a point in time. Essentially, it is the difference between the total insurance benefit and the policy’ cash value (reserve, account value). The net amount-at-risk is used to determine the mortality charge assessed to the policy at a given point.

ANNIVERSARY – Refers to the date one year (or more) following the effective date of the contract.

ANNUAL POLICY STATEMENT – Individual statements, providing specific policy information and values, which are sent to policyowners on each contract anniversary.

ANNUITANT – The person whose lifetime is used in determining the benefits payable under the annuity contract.

ANNUITIZE – Process to convert part or all of the money in an annuity into a series of regular income payments to the annuitant or a beneficiary. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can't be altered. This term also refers to the settlement of a life insurance policy under the contract’s annuity options.

ANNUITIZATION PERIOD – The period of the contract when the amount built-up or accumulated during the accumulation phase is paid out to the annuitant in the form of systematic payments.

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BACK DATE – To make the effective issue date of an insurance policy earlier than the date of the application; normally not more than 6 months and often done to issue a policy at an earlier insurance age.

BENEFICIARY – The person or persons designated by the policyowner to receive the proceeds of an insurance policy upon the death of the insured. The policyowner may change the beneficiary through a written request to the home office.

BENEFIT PERIOD – The period of time that benefits are normally payable for a disability.

BENEFITS – The sum of money specified in a life insurance contract to be paid to the beneficiary when a loss occurs.

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CAPITAL GAIN/LOSS – Difference between an asset’s purchase price and the price at which it is sold. If the difference is positive it is a capital gain; if negative it is a capital loss.

CAPITAL NEEDS ANALYSIS – A program for gauging the amount of capital on-hand, the immediate cash, and the long term income needs that would be incurred by survivors upon a person’s death. The level of the need is determined by weighing sources of cash after death against continuing obligations.

CASH DIVIDEND OPTION – The dividend option that provides for the dividend to be sent in cash to the owner on the policy anniversary.

CASH VALUE / CASH SURRENDER VALUE / SURRENDER VALUE – The net amount of money which will be paid to the owner when the contract is canceled and surrendered to the company.

CEDING COMPANY – The originating insurance company when a risk has been transferred to a reinsurance company.

CHANGE OF BENEFICIARY PROVISION – A contract provision that allows the owner of the insurance policy to change the beneficiary whenever desired, unless the beneficiary has been designated as irrevocable. In which case, the beneficiary’s and maybe a court's written permission would be required before a change could take place.

CHARTERED FINANCIAL CONSULTANT (ChFC) – A professional designation conferred upon an individual by the American College as a result of the successful completion of financial courses. This designation indicates that the individual has a broad and in-depth knowledge of the financial planning process as well as the various financial products available in the marketplace. ChFC candidates must pass a national exam in insurance, investment, taxation, employee benefit plans, estate planning, accounting, and management.

CHARTERED LIFE UNDERWRITER (CLU) – A professional designation conferred upon an individual by the American College as a result of the attainment of high standards of education and proficiency in the art and science of life underwriting. The CLU program delves deeply into the life insurance business, its place in the economy, its operation and distribution systems, and its investment basis. CLU candidates must pass a national examination that covers life insurance, insurance law, taxation, group benefits, investments, and retirement and estate planning.

CHECK-O-MATIC (COM) – A premium payment option that provides for the monthly automatic withdrawal of premiums due from a payor’s checking or savings account. Also referred to as "pre-authorized check" draft.

CLAIM – A demand presented for payment of the benefit due under the terms of an insurance contract.

CLAUSE – An article or added provision in a life insurance contract such as the Suicide Clause or the Incontestability Clause.

COLLATERAL ASSIGNMENT – The pledge of a life insurance policy as security for the repayment of a loan, which provides the assignee with rights that are superior to the rights of the original policyowner and beneficiary, to the extent of the obligation owed to the assignee.

COLLATERAL ASSIGNMENT SPLIT DOLLAR – Under a collateral assignment split dollar plan (SDA), generally an employee applies for a life insurance policy and is designated as its owner. The employer pays all or part of the insurance premium; this arrangement may be considered an interest-free loan to the employee. As stipulated by the agreement governing the SDA, the employee agrees to assign an interest in the life insurance policy to the employer as collateral securing the loan. Depending on how the SDA is structured, the employee may control all of the policy's cash value in excess of the assignment. The loan is either repaid at some point in the future, from the policy's death benefit or its cash value, or from other assets, or the loan is forgiven.

COMMISSIONS – A fee or percentage of premium allowed to a salesperson or Financial Representative for service rendered.

CONSUMER PRICE INDEX (CPI) – An index of prices used as a measurement of change in the cost of basic consumer goods and services, as determined monthly by the U.S. Bureau of Labor Statistics.

CONTESTABLE PERIOD – The period of time after issuance of an insurance policy during which the insurer can contest (dispute or deny) the validity of the contract in a court of law.

CONTINGENCY RESERVES – Reserves that provide a margin of safety to assure that a company’s assets and liquidity are sufficient to pay claims.

CONTINGENT BENEFICIARY – A secondary beneficiary who will receive any policy proceeds remaining unpaid upon the death of the direct beneficiary.

CONVERSION – The change of one policy to another. See Term Conversion.

CONVERSION CREDIT – A one-time credit given when converting certain term insurance policies to permanent insurance. The credit may be based on one or all of three factors: reserves, dividends, or current year’s premiums.

COST OF INSURANCE (COI) – On a Universal Life policy, the monthly charge to provide insurance coverage.

CURRENT ASSUMPTION – Current interest and mortality rates, rather than historic rates, used in the calculation of life insurance premiums and benefits. It provides the basis for interest-sensitive products such as Universal Life.

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DEATH BENEFIT – The net proceeds payable on a policy at the death of the insured, which includes the policy face amount, plus any rider or dividend proceeds and less any loans and loan interest.

DEATH BENEFIT OPTION, A or B – On Universal Life policies, A indicates that the policy face amount less any outstanding loans & interest is payable and B indicates that the policy face amount plus the policy cash value is payable less any outstanding loans & interest.

DEFERRED ANNUITY – An "accumulation" annuity product under which payments are made by the annuitant, either through a single premium or a series of periodic payments, and left to accumulate on a tax-deferred basis over a period of years. It usually begins paying an income to the annuitant at retirement.

DEFERRED COMPENSATION PLAN – A non-qualified benefit plan under which an employee defers current income to some future date. Under such an arrangement, the employer makes an unsecured promise to pay the employee future income. The employee is not taxed on the deferred income until it is distributed and the employer receives no tax-deduction for compensation until that same time. Permanent life insurance is a popular method of Deferred Compensation Plan funding. The plan may provide retirement benefits to the employee and death benefits to the employee’s beneficiaries.

DEFINED BENEFIT PLAN – A retirement plan in which benefits are established but the contributions may vary. Various investment vehicles including fixed or variable annuities can fund the defined benefit plan.

DIRECT RECOGNITION – This term refers to the fact that the loan interest rate earned on loaned policy assets is directly recognized when calculating dividends on that policy.

DISBURSEMENTS – Cash taken from a life insurance contract in the form of loans, dividends and/or surrenders.

DIVERSIFICATION – Spreading of risk by placing assets in several categories of investments (such as stocks, bonds, cash and short-term investments, mortgage loans, alternative investments and real estate).

DIVIDEND (Policy Dividend) – The return of part of the policy's premium for a policy from the insurer if the company has operated with sufficiently favorable experience.

DIVIDEND ADDITIONS – A dividend option under which dividends purchase paid-up additional insurance. Since the paid-up additional insurance may also be participating, its growth also compounds. The growth in value is tax-deferred.

DIVIDENDS HELD – A dividend option that holds dividends in an interest bearing account similar to a savings account.

DIVIDEND HISTORY – A policy’s actual dividend performance over past years.

DIVIDEND OPTION – The policyowner’s choice for use of the dividend.

DIVIDEND PROTECTION OPTION (DPO) – The option under which a policy is converted to a reduced paid up basis with additional coverage not exceeding the difference between the reduced amount and the original amount provided by a combination of dividend additions and one year term insurance.

DIVIDEND RESERVE – A balance sheet liability account. This is the amount the company has set aside for dividend distribution to policyowners during the next year.

DIVIDEND SCALE – A schedule of dividends being paid in a given year. The three explicit components of the dividend scale are mortality, expense and investment experience. A dividend scale is not an estimate or guarantee of future results.

DIVIDEND SCALE INTEREST RATE – The investment component of the dividend scale reflecting the company’s total investment return. The stated rate includes the policy’s guaranteed interest rate and the excess interest which is returned through the dividend. It may be net of any investment expenses or taxes that a company may deduct from its gross rate of return.

DOLLAR COST AVERAGING – An investment strategy designed to reduce volatility in which securities, typically mutual funds or variable annuities, are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving. Thus, as prices of securities rise, fewer units are bought, and as prices fall, more units are bought. also called constant dollar plan. Periodic investment plans do not assure a profit and do not protect against loss in declining markets. Dollar cost averaging plans involve continuous investment in securities regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low price levels.

DOUBLE INDEMNITY – See Accidental Death Benefit.

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EMPLOYEE PLAN – A tax-qualified pension or profit sharing plan sponsored by an employer (i.e. corporation, partnership), for the purpose of providing retirement benefits or life insurance for an employee.

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA) – The law that covers pension plans, including vesting requirements and plan design.

ENDORSEMENT – A change made in a life insurance policy, as requested by the policyowner and acknowledged by the company, such as a change of beneficiary. Endorsements also include revision in wording for the purpose of clarifying particular provisions of an insurance contract.

ENDORSEMENT METHOD SPLIT DOLLAR – A split dollar arrangement, between an employer and employee, under which the employer owns the policy but, through an endorsement, provides the employee with a death benefit.

ENDOW – When an insurance policy’s guaranteed cash value equals the initial death benefit it is said to "endow" or mature. With a whole life contract, that point occurs at the insured’s age 100.

ENDOWMENT – An insurance policy that pays a stated amount at the end of a specified period or upon the death of the insured if it occurs within the period.

ESTATE PLANNING – Planning for the orderly handling and administration of an estate upon the death of the owner. This usually involves drawing up a will and setting up trusts and insurance, with the intention of reducing loss to the estate value incurred by estate taxes and administrative expenses.

EVIDENCE OF INSURABILITY – Statements and representation regarding an insured’s or prospective insured’s state of health, avocations and financial condition that might affect insurance acceptability.

EXCHANGES – Under IRC § 1035, certain insurance policies and annuity contracts may be exchanged for new contracts with no gain or loss recognized on the exchange. Tax rules must be followed to achieve the desired result.

EXCLUSION – Provision that indicates a circumstance or event, such as an act of war, that would cause the benefit to be denied.

EXPECTED MORTALITY – The number of deaths which theoretically will occur among a group of people, during a given period of time, according to the mortality table in use. When actual mortality experience results are better than expected, the gain may be passed on to policyowners through the dividend.

EXPENSE CHARGES – The charges assessed against a policy to cover part or all of the insurance company’s acquisition and maintenance expenses related to issuing and servicing the policy, including charges covering various federal, state and local taxes.

EXPERIENCE FACTORS – Factors, such as expenses, mortality, investment and rate of lapses, which are used to determine an insurance product’s cost.

EXPIRATION DATE – The date on which the insurance policy ceases to protect the policyowner.

EXTENDED TERM INSURANCE (ETI) – A nonforfeiture option under which term insurance is purchased with the remaining cash value of a whole life policy.

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FACE AMOUNT – The base amount stated in the policy as payable at the death of the insured or at the maturity of the contract. Also sometimes called "amount of insurance", "policy benefit" or "face value." This amount does not include the effect of dividends or policy loans.

FACE PAGE – The first page of a life insurance policy. It includes basic information such as the policy number, type of policy, and premium amount, as well as the name of the insured, the owner and the beneficiary.

FELLOW OF LIFE MANAGEMENT INSTITUTE (FLMI) PROGRAM – Established in 1932, the FLMI Program is the world’s largest university-level educational program in insurance. The FLMI designation is the hallmark of professionalism for managers and technical/professional personnel in the life and health insurance and financial services industries.

FELLOW OF THE SOCIETY OF ACTUARIES (FSA) – A designation available to actuaries who pass a series of examinations. The designation indicates that the individual has developed a knowledge of the business environments within which financial arrangements for pensions, life insurance, and health insurance operate, including the application of mathematical concepts and other techniques to the various areas of actuarial practice. The Society of Actuaries prepares the course materials and administers the national exams.

FIDUCIARY – An individual, corporate entity or association that holds a fiduciary relation or acts in a fiduciary capacity. If asset(s) are being managed by the fiduciary, the fiduciary has the responsibility of acting in the beneficiary’s best interests.

FIXED PAYMENT PLAN – An annuity plan payout option, which distributes payments in "set" amounts. Fixed plans provide for the systematic liquidation of principal and interest in a series of equal periodic payments that do not fluctuate over time.

FLEX TERM – Insurance coverage that is provided through a combination of additions and one year term insurance purchased by dividends. There are several different variations of this coverage, some of which require cash premium payments and some of which do not.

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GENERAL AGENCY SYSTEM – The system utilized by many insurance companies (including National Life) to organize its field offices. The general agency usually consists of a general agent and individual soliciting career agents plus a supporting clerical staff.

GENERAL AGENT- An independent business person who acts under a grant of authority from a life insurance company to develop insurance business within a defined territory. The general agent is frequently an active sales person, as well as the administrator of the agency.

GIFT – The transfer of an asset, such as a life insurance policy, without requiring any form of payment.

GIFT TAX – State and/or federal taxes levied on the transfer of gifted property.

GRACE PERIOD – The period of time between a premium’s due date and the date the policy will lapse if the premium is still unpaid. If the insured of a life policy dies during the grace period, the unpaid premium is deducted from the policy proceeds.

GROSS PREMIUM – The full, contracted premium amount before any dividend amount is subtracted.

GUARANTEED CASH VALUE – The base policy cash value as detailed within the insurance contract. This cash value is guaranteed to exist if premiums are paid in full, in cash.*

GUARANTEED ISSUE (GI) – Insurance in a pension plan under which issuance of policies on new plan members is guaranteed.*

GUARANTEED DEATH BENEFIT RIDER (GDB) – Guarantees the death benefit on a Variable Universal Life policy regardless of the policy’s cash value if minimum premium payment requirements are met.*

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HISTORICAL PERFORMANCE – The rates of return achieved in the past on a particular savings or investment vehicle. Of course, past performance is no guarantee of future results. Historical performance alone is not a valid means to compare investment vehicles.

HOME OFFICE - The headquarters of an insurance company that typically houses the actuarial, claims, investment, law, marketing, and service areas.

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ILLUSTRATION – A sales ledger or proposal showing, among other things, a product’s guaranteed and non-guaranteed future payments, cash values and death benefits. Non-guaranteed values are based on the company’s current rates of interest, mortality and expenses. The illustration is simply an example of how the policy might perform under one specific set of assumptions. It is neither an estimate nor guarantee of future results. While illustrations may be helpful in showing how a policy might perform, they are not a prediction of policy performance.*

IMMEDIATE ANNUITY – An annuity product under which life income or specified period payments begin at the start of the next specified period following premium payment (for example, one month or one year).

INCONTESTABILITY CLAUSE – A possibly contract clause which describes the two year period after issuance of a policy during which the life insurance company can resist payment of a claim if there was a misrepresentation in the policy owner’s original application.

INDEMNIFY – The agreement to pay, repair or replace for possible damage or loss.

IN FORCE POLICY – As defined in the Settlement Agreement, these terms mean a policy that has not been surrendered and is not lapsed or otherwise terminated.

INSURABILITY – Those qualifications of age, health, occupation, etc., which enable the applicant to meet the requirements of an insurance company for the issuance of insurance.

INSURABLE INTEREST – A beneficiary or policy owner has an insurable interest in an insured person if he or she has a reasonable expectation of benefit from the continuance of the insured’s life, or a loss if the insured dies.

INSURANCE – A system whereby individuals and companies who are concerned about the potential for loss pay premiums to an insurance company which, in turn, will pay a predetermined amount to those individuals and companies in the event the loss occurs.*

INSURANCE REGULATORY INFORMATION SYSTEM (IRIS) – This NAIC program consists of a series of ratios calculated from figures shown in company annual statements and is designed to give state regulators a prompt indication of possible financial problems.

INSURED – The person whose life is covered by the insurance contract.

INTEREST MAINTENANCE RESERVE – The reserve amount required to spread the effect of some realized capital gains and losses over several years, rather than reflecting them immediately in earnings and surplus.

INTEREST RATE – The rate of interest credited on a policy’s cash or account value. The stated rate includes the policy’s guaranteed interest rate and the excess interest currently being paid by the insurance company. The declared rate may be net of any expense or taxes that the company deducts from its gross rate of return.*

INTERNALLY FUNDED PREMIUM PAYMENT OPTION – The ability to internally fund a life insurance contract will be dependent upon the performance of the contract. Using policy values and benefits to pay the premium due will reduce the policy’s cash value and death benefit. If policy values are insufficient to pay the premium, additional out-of-pocket payments may be needed to keep the policy in force.

INVESTMENT PORTFOLIO - The combined holdings (stocks, bonds, real estate investment, cash and short-term investment or other assets) of an individual or institutional investor.

IRREVOCABLE TRUST – A trust that cannot be revoked or amended by the party who establishes it. This type of trust is often established when life insurance is purchased to protect an estate.

ISSUE DATE – The effective date of the contract, also the date from which suicide and incontestability periods are calculated.

ISSUING COMPANY – The insurance company within National Life Group® that is the issuing company for your contract.

IN-FORCE LEDGER PROPOSAL – An illustration of future policy values.

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KEY PERSON INSURANCE – A form of business insurance covering the life of an important employee.

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LAPSE – The termination of a policy due to the nonpayment of premiums.

LEVEL OUTLAY – A dividend option elected by the policyowner which allows National Life to generate premium notices for a fixed amount which is less than the premium due. The premium balance is paid by a surrender of dividends. If there are not sufficient dividends to pay the selected amount, the full premium will be billed.

LEVEL PREMIUM – A premium that remains the same, not increasing with the insured’s age, throughout all the premium payment years of the contract.

LIFE ANNUITY – An annuity in which payments are guaranteed to be paid at regular intervals for the life of the annuitant.

LIFE ANNUITY WITH PERIOD CERTAIN – A life annuity that guarantees payments will continue for a specified number of years. If the annuitant dies before the period certain has expired, payments will be made to a beneficiary for the duration of the period certain.*

LIFE EXPECTANCY – The average number of years of life remaining to a number of people of a given age according to a given mortality table.

LIFE INSURANCE – A product that provides indemnification for the economic loss caused by a person’s death. The indemnification is made possible by spreading the cost of the financial loss over a large group of people who are exposed to the same risk.

LIFE INSURANCE MARKETING AND RESEARCH ASSOCIATION (LIMRA) – A research organization, based in Hartford, CT, that conducts research on behalf of its life and health insurance member companies.

LIFE OFFICE MANAGEMENT ASSOCIATION (LOMA) – An independent association that provides college-level education in insurance and insurance management subjects for students from life insurance companies around the world. The Life Office Management Association offers the FLMI diploma.

LIFE UNDERWRITER TRAINING COUNCIL (LUTC) – An independent, non-profit, nationwide life insurance sales training organization. It is a professional designation granting institution offering an education program emphasizing skills building.

LIFE UNDERWRITER TRAINING COUNCIL FELLOW (LUTCF) – A designation awarded to students who have successfully completed the required LUTC courses.

LOADING – The amount added to net premiums to cover the company’s operating expenses and contingencies. Loading includes, among other things, the cost of securing new business, collection, and general management expenses.

LOAN – Borrowing from the insurer and securing the amount of the loan by the cash value in the life insurance policy. If the insured dies when there is an outstanding loan balance, the amount of the loan and any unpaid interest will be deducted from the proceeds. Policy loans and withdrawals may reduce the policy's cash value and death benefit and may result in a taxable event.

LOAN INTEREST – Annual interest charged on outstanding loan.

LOAN VALUE – The amount that can be borrowed from the insurance company, using the policy cash value as collateral.

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MAINTENANCE EXPENSES – Administrative expenses incurred by a company to maintain and service a policy from year to year, such as billing, record keeping, and dividend crediting. See Acquisition Expenses.

MATERIAL MISREPRESENTATION – A statement made by the applicant or proposed insured in the policy’s application which is not factually correct. Usually, if the truth had been disclosed, the insurer would not have issued the policy or would have issued it without additional benefits or at a higher premium.

MATURITY DATE – The date which the policy endows, for its total face amount.

MATURITY VALUE – The amount payable under a whole life insurance policy if the insured person lives to the last age on the mortality table on which the values of the contract were based.

MEDICAL EXAMINATION – A medical history and exam completed by a doctor that National Life may require of the applicant during the underwriting process.

MEDICAL INFORMATION BUREAU (MIB) – A service utilized by life insurance companies who are members of the MIB. Member companies are required to provide brief, coded reports of significant underwriting information to the MIB on a confidential basis. These reports do not include indication as to whether or not an application is issued, rated, or declined. The information is used to protect against the omission of significant underwriting information by forgetful or dishonest applicants. Only member companies have access to this information.

MILLION DOLLAR ROUND TABLE (MDRT) – An independent, international association of life insurance agents devoted to continuing education for professional and personal development. An agent can become a member by achieving the production and earnings qualifications required by the association.

MISREPRESENTATION – Making, issuing, circulating, or causing to be issued or circulated any written or verbal statement that does not correctly represent policy terms. Also, use of a name or title for any policy or class of policies that does not reflect its true nature.

MORBIDITY - Refers to the potential loss of health for a specific population.

MORTALITY – The frequency of deaths in proportion to a specific population.

MORTALITY CHARGE – The cost of the insurance protection (death benefit minus cash value) on a life product. On an illustration, mortality charges referred to, as "current" are not guaranteed. Those stated as "maximum" are the contract guarantees. The mortality charge is similar to a one-year term rate and increases with the insured’s attained age. Commonly associated with universal life, the mortality charge is multiplied by the net amount-at-risk to determine the cost of providing insurance protection.

MUTUAL HOLDING COMPANY - A mutual holding company is an organizational structure that preserves the benefits of a traditional mutual company form while strengthening the company's position in its ability to explore outside options and raise capital for the benefit of policyholders. The structure provides opportunities for strategic acquisitions, the formation of strategic business combinations and alliances which can promote synergies, efficiencies and economies of scale. In a mutual holding company setup, policyowners have the right to elect directors of the mutual holding company, which in turn holds a majority of the voting stock of its subsidiary insurance company.

MUTUAL COMPANY – An insurance company which is owned by its policyowners, in which the overall net earnings and savings of the company, if any, are distributed to the policyowners in the form of dividends. Mutual insurance company policyowners participate in the election of the board of directors. A mutual company has no stockholders.

MUTUAL FUND – Pooled money from shareholders that is invested in a variety of securities, including stocks, bonds and money market securities. Mutual funds offer the individual investor the advantages of diversification and professional management. Investment return and principle value will fluctuate with market conditions so that shares, when redeemed, may be worth more or less than their original cost.

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NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) – An organization of state insurance commissioners which meets to discuss and develop insurance regulations and practices.

NATIONAL ASSOCIATION OF LIFE UNDERWRITERS (NALU) – The oldest and largest association of its type in the world that is primarily concerned with the insurance-buying public and those engaged in life sales and sales management. Its aim is to promote a clear understanding and appreciation of life insurance and to encourage agent professionalism, competency and high ethical standards.

NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD) – A self ¬regulatory securities industry organization responsible for the operation and regulation of the Nasdaq stock market and the over-the-counter securities business. Under the Supervision of the SEC, the NASD’s basic purposes are to standardize field practices, establish ethical standards in securities trading, provide representative body for consultation, establish and enforce rules of fair trading, and provide a disciplinary body to enforce these rules. The NASD has the power to expel its members from an exchange in the case of wrongdoing, but it cannot take legal action against a member other than by reporting it to the SEC. The association is run by a Board that takes half of its representatives from the securities industry and half from the public.

NEEDS BASED SELLING – The common life insurance sales strategy of placing enough coverage to preserve the customary lifestyle of a family upon the death of a wage earner. The level of coverage might be planned to go beyond covering burial/funeral expenses, and also provide cash for mortgage payments, ongoing support for the spouse and children, funds for education, as well as to cover emergency and miscellaneous expenses.

NONFORFEITURE PROVISIONS / OPTIONS – Provisions guaranteeing minimum values to policyowners who have paid premiums long enough to establish cash value in a policy.

NON-INVESTMENT GRADE BONDS – Bonds rated below BBB- by Standard and Poor’s or Baa3 by Moody’s. Sometimes referred to as "junk" or "speculative-grade" bonds.

NON-MEDICAL INSURANCE – Life insurance issued without requiring a medical or paramedical examination of the applicant. In accepting the applicant, the insurance company relies on the applicant’s own answers to questions regarding his/her physical condition.

NON-PARTICIPATING POLICY – A life insurance policy which does not participate in the distribution of dividend surplus.

NON-PERFORMING ASSETS – Refers to investments which are not yielding positive or anticipated returns.

NON-QUALIFIED BENEFITS PLAN – A retirement plan arrangement that allows an employee and/or employer to make contributions to an annuity. This plan is subject to fewer restrictions and is easier to administer than a Tax-Qualified Plan.

NON-SMOKER PREMIUM RATES – This rate structure recognizes that non-smokers are more likely to live longer and avoid debilitating illness than are smokers. In effect, it provides better pricing for non-smokers.

NON-TRADITIONAL POLICY – Generally refers to Universal Life Insurance.

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OPTIONAL MATURITY DATE – In an endowment or deferred annuity policy, it is an owner specified maturity date that is later than the maturity date specified in the contract.

OPTIONAL POLICY BENEFITS – The additional policy benefits that are available with various life insurance policies. The additional benefits are entirely elective and are subject to approval by underwriting.

ORPHAN – A policy owner who is not currently being serviced by an active agent.

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PAID-UP POLICY – A participating life insurance policy which continues in force although there are no premiums due.

PARAMEDICAL – A physical examination the insurer may require of applicants during the underwriting process. It is generally not as thorough as a full medical examination. It is usually performed by nurses, rather than doctors.

PARTICIPANT – Any employee or former employee who is eligible to receive benefits from an employee benefits plan or whose beneficiaries may be eligible to receive benefits from the plan.

PARTICIPATING POLICY – A policy which does participate in the distribution of dividend surplus. dividends are not guaranteed.

PAYOR – The person making premium payments on a policy.

PAY-OUT PHASE – In an annuity, the stage at which the annuitant, or beneficiary, takes distribution of the accumulated assets plus earnings. The pay-out phase usually begins after retirement and the annuitant can elect to have the cash distributed on a regular basis over a specified period of time or for the remainder of his or her life.

POLICY LOAN – A non-recourse loan from the insurer to the policyowner secured by the policy’s cash value. Loan interest, which may be set at a fixed or variable rate, must be paid annually or accumulated on the loan provided there is sufficient remaining value. Policy loans and withdrawals may reduce the policy's cash value and death benefit and may result in a taxable event.

POLICYOWNER – The individual who owns an insurance policy and who has all contractual rights. The policyowner is not necessarily the same person as the insured or the payor.

POLICY RESERVE – In life insurance, a liability account that measures the money that the insurance company has to have on hand to pay future claims. The term policy reserve is also often used to refer to the assets offsetting this liability account.

POLICY SPLIT OPTION – Applicable to Joint Life products. A contractual or non-contractual procedure for splitting the policy in event of divorce or repeal of the unlimited marital deduction. Evidence of insurability may be required.

PORTFOLIO REBALANCING – Portfolio rebalancing is a variable product contract feature which will automatically rebalance the value in your subacccounts at a predetermined interval based on the premium allocation percentages in effect at the time of the rebalancing.

PREMIUM – The amount set by contract to be paid to the insurance company for benefits provided under the contract.

PREMIUM MODE – The frequency of premium payments. For National Life Insurance Company policies the mode may be annual, semi-annual, quarterly or monthly for certain contracts.

PRESENT VALUE – Refers to a method that applies an assumed rate of interest to compute today’s value for a future payment.

PRIMARY BENEFICIARY – The person who, upon the insured’s death, has the first right to receive insurance proceeds.

PROCEEDS – The net amount of money payable under the terms of a life insurance contract upon the insured’s death or upon the maturity of an endowment.

PROPOSED INSURED – The person named in a life insurance application as the person whose life is to be covered by the insurance, if the application is approved.

PRO RATA DIVIDEND – That portion of the annual dividend which has become available from the last anniversary to the current value quotation date.

PROSPECTUS – A legal document, which explains, fees, goals, company history, lists oficers, financial data and procedures for investment products. All persons considering the purchase of a variable life or annuity product must be provided with this document, and potential buyers are urged to read it carefully.

PROVISION – A statement of clause, found in an insurance policy, to establish some term of the contract.

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QUALIFIED RETIREMENT PLAN – A retirement plan started by a business organization which meets certain federal requirements. Money paid by employees of an organization toward such a plan is not taxable as income to the employee and is generally tax deductible for the employer.

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RATING / RATED PREMIUM (SUBSTANDARD PREMIUM) – A policy premium which is increased by a charge in addition to the regular premium, generally due to health, occupation or avocation concerns developed in the underwriting process. Sometimes shows as an additional percentage of the base premium.

REDUCED PAID UP INSURANCE – A paid up policy for a face amount less than the original premium paying amount that is purchased using the original policy’s cash value.

REGISTERED REPRESENTATIVE - A person who has passed the appropriateNASD examination. Any agent selling variable products must also be a registered representative.

REINSURANCE – To transfer in whole or in part, a risk or contingent liability already covered under an existing contract from one insurer (the ceding company) to another (the reinsurer).

REINSTATEMENT – The process by which a life insurance company puts back in force a policy which has lapsed for the nonpayment of premiums.

RENEWABLE TERM INSURANCE – Term insurance that may be renewed without evidence of insurability for another term of the same length, for example, yearly renewable term.

REPLACEMENT – The act of terminating coverage with one insurer for coverage with another. This practice is regulated by most states because it is seldom in the insured’s best interest to make such a switch.

RESCISSION – The legal act of canceling (rescinding) the policy and refunding all premiums paid from the policy’s issue.

RESERVE – The amount of money an insurer holds, which, with future premiums and an assumed rate of interest, will pay contractual obligations as they fall due. A reserve is usually treated as a liability.

RESTRICTIONS – Factors affecting what actions can be taken on a policy, such as ownership restriction because of a divorce or tax levy.

RETENTION LIMIT – The maximum amount of insurance the company can retain before ceding business to a reinsurer. The maximum amount may depend on the insured’s age, health, coverage in force as well as the company’s financial condition.

RETURN ON EQUITY (ROE) – Net operating gain as a percentage of prior year capital and surplus. This profitability test reflects the return on capital and surplus from insurance operations and investments and has been traditionally used with stock companies to indicate return on stockholder’s investment. Comparisons cannot be made between stock and mutual companies since the net operating gain is after dividends are paid to policyowners.

REVOCABLE BENEFICIARY – A beneficiary whose rights are subject to the rights of the policyowner who may revoke or change the beneficiary designation and exercise any ownership rights under the policy without the beneficiary’s consent.

RIDER – A special provision that may be added to a policy to either expand or limit the policy benefits otherwise available, for example, ADB (accidental death benefit rider).

RISK – In insurance, it is the probability of morbidity or mortality. It also pertains to uncertainty of gains or losses regarding investment performance on the underlying funds of a variable product.

RISK AMOUNT – The difference between the death benefit and cash value. This is the amount on which mortality charges are assessed annually.

RISK CLASSIFICATION – An underwriting process used to determine the appropriate price category of the proposed insured, according to risk factors associated with that person’s health condition, lifestyle, etc.

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SECOND-TO-DIE – A type of life insurance policy that insures two lives. The death benefit is payable at the second death. Generally, this product is used as a funding vehicle for estate taxes payable at the second death when the unlimited marital deduction is utilized. Second-to-Die policies are also referred to as survivorship policies.

SECTION 401(k) PLAN - Internal Revenue Code 401(k) is an employer-sponsored, salary-reduction retirement savings program. The employee defers a percentage of current salary on a pre-tax basis and the employer often matches some portion of that amount. There is a cap on the annual contribution and usually a 10% penalty is levied on funds withdrawn before age 59 ½. The accumulating funds can possibly be borrowed by the employee and repaid with interest.

SECTION 403(b) PLAN – Internal Revenue Code 403(b) is a retirement program offered to employees of tax-exempt organizations, such as public schools. Subject to certain limitations, the organization pays annuity premiums on behalf of their employees and provides employees with a tax advantage by excluding the amount of the payments from their gross incomes.

SECURITY – An investment contract containing the following elements: (1) a transaction in which money is invested: (2) the investment is in a common enterprise: (3) there is an expectation of profit resulting solely from the efforts of others. Some examples of securities include stocks, bonds, and mutual funds.

SECURITIES AND EXCHANGE COMMISSION (SEC) – A federal agency created by the Securities Exchange Act of 1934 to administer the act and to help protect the interests of investors.

SELF-EMPLOYED INDIVIDUAL’S RETIREMENT ACT – An act of the U.S. Congress, approved in 1962, permitting self-employed people and their employees to take advantage of tax benefits similar to organizations. Also known as HR 10 and the KEOGH Act.

SEPARATE ACCOUNT – By law, insurers are required to hold the assets on all variable plans apart from the general assets of other plans. The Separate Account is an asset account maintained by the insurer to support variable contracts.

SERIES 6 – An examination that must be successfully completed to receive the Registered Representative designation. This designation is required by the NASD for all individuals who sell mutual funds & variable products. It may also be required for sales support & customer service staff.

SETTLEMENT OPTION – One of several choices given to the policy owner or beneficiary with respect to the method of payment of the contract proceeds.

7-PAY TEST – The maximum annual premium allowed during the first seven years in order to avoid classification as a modified endowment contract under TAMRA §7702A. The premium will vary by company and the insured’s issue age, sex and underwriting class. A new 7-pay test is required after each material change of the contract.

SIMPLIFIED EMPLOYEE PENSION PLAN – An employer-sponsored plan that can be used by sole proprietors, partners, and corporations. Contributions are made to each employee’s individual retirement account and grow tax deferred until retirement.

SINGLE PREMIUM – Refers to the one-time payment required to cover the entire cost of a life insurance or annuity contract.

SPAR – Single Premium Additions Rider in which a single premium is paid to purchase a lump sum of additional paid up insurance.

SINGLE PREMIUM IMMEDIATE ANNUITY – An immediate annuity that is purchased with a single lump sum payment.

SOCIETY OF ACTUARIES (SOA) – An organization whose members are trained in the application of actuarial mathematics; that is, statisticians who compute insurance risks and premiums. The SOA conducts the examinations for the designations of Fellow (FSA) and Associate (ASA) of the Society of Actuaries.

SOCIETY OF FINANCIAL SERVICE PROFESSIONALS – A national professional organization dedicated to maintaining the high ethical standards in the life insurance and financial services industry, and to providing programs for its members to continue their professional education through sponsorship of its own education activities as well as American College courses.

SPLIT DOLLAR PLAN – An arrangement in which premiums, cash values and death benefits are divided between two parties, usually an employer and employee. In business situations, this may result in the employee having to report an economic benefit cost for tax purposes.

STOCK – A certificate of ownership of a corporation representing a share of its capital and surplus.

STOCK COMPANY – An insurance company formed and capitalized through the sale of shares of stock. Those purchasing the stock are owners and share in the company’s earnings. Common stockholders vote on the company’s board of directors, on matters involving company policy, and may receive a distribution of earnings through stock dividends declared by the company. Compare to Mutual Company.

SUB-STANDARD RISK – A life insurance applicant who faces a greater likelihood of early death than the group experience on which the Standard premium rates are calculated. Examples include persons in poor health and those who work in dangerous occupations.

SUICIDE CLAUSE – In the case of National Life Insurance Company, a policy provision stating that if the insured dies by suicide within two years of the date of issue, the policy will be voided. The full benefit would be paid if suicide occurs after the second policy year, assuming all other policy conditions are met.

SURPLUS – Total assets minus the sum of all liabilities. Surplus originates from investment and operating gain.

SURRENDER – Cancellation of the policy, which involves returning the contract to the issuing company.

SURRENDER CHARGE – The amount deducted from the accumulation or account value to produce the surrender value.

SURRENDER OF ADDITIONS – Withdrawing in cash that portion of the life insurance purchased through dividends, thus forfeiting the death benefit they provide.

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TAMRA – Tax and Miscellaneous Revenue Act of 1988. It is within this act that modified endowment contracts and their tax treatment are defined.

TARGET PREMIUM – The annual payment on a universal life contract which, based on non-guaranteed elements, endows the contract at its maturity date (usually age 95). The premium is calculated by the insurer and may be more conservative than the minimum premium that could be illustrated under the product’s current assumptions. The target premium may change from year to year as the insurance company’s actual experience fluctuates.

TAX BASIS – On a life insurance policy, the total premiums paid less dividends paid or earned equate the tax basis. The tax basis less the cash surrender value equates the policy’s taxable gain.

TAX DEFERRAL – Postponing the payment of income taxes until some point in the future, often at retirement. Generally, the cash value growth inside life insurance is eligible for deferral, unless the amount of cash received through surrender exceeds the policy’s tax basis. Any additional surrenders beyond the basis must be reported as taxable income.

TAX QUALIFIED PLAN – A retirement plan arrangement that allows an employee and/or employer to make contributions, often on a pre-tax basis, to an annuity. Certain requirements and contribution limits must be met to qualify. Examples include Pension/Profit-Sharing, 401(k), Simplified Employee Pension, Tax-Deferred Annuity, and Individual Retirement Annuity plans. Compare to Non-Qualified Benefit Plan.

TAX SHELTERED ANNUITY – See Tax Deferred Annuity.

10-DAY FREE LOOK – The time period after the policy’s delivery during which the insured can return the contract and receive a full refund of premiums paid. The policy is then void from the beginning. This provision is mandated by many states and in some cases is longer than 10 days.

1035 EXCHANGE – An Internal Revenue code provision which allows the tax-free exchange of certain contracts for another. The exchange may not be taxable. The tax cost basis of the old contract is carried over to the new one. However, the exchanged contracts must be similar products and the insured and owner may not change.

TERM INSURANCE – Insurance which provides a death benefit only. Premiums increase each year, or, in the case of level premium renewable term, at the end of each renewal period (typically 5, 10, 15, or 20 years). Level premium decreasing term has a level premium, but the insurance benefit decreases on each policy anniversary. Since term insurance can become quite expensive at older ages, it is often used to cover protection needs of a shorter duration or to cover a specific need such as an outstanding loan balance. It may be convertible to some form of permanent life insurance.

TERM RIDER – A rider attached to a basic policy to provide additional coverage in the form of term insurance.

TOTAL CASH VALUE – On life insurance sales illustrations, the combination of the guaranteed and non-guaranteed portion of the cash value. The term refers to the cash value after the deduction of any surrender charges.

TRADITIONAL LIFE – This term generally refers to Whole Life as opposed to Universal Life insurance.

TRANSFER FOR VALUE – Transfer of the ownership of a life insurance contract for valuable consideration. At the death of the insured, this results in reportable ordinary income to the extent that the death benefit exceeds the new owner’s tax basis. There are certain exceptions to this rule: transfers to the insured, a corporation to which the insured is an officer or shareholder, to the insured’s partner or partnership, a transfer by gift, and a transfer where the transferee’s basis is determined in whole or in part by reference to the transferor’s basis. IRC § 101 (a).

TREASURY BILL (T-Bill) – A short-term obligation of the U.S. government issued for periods of one year or less. They are issued at a discount and mature at par.

TREASURY BOND – United States government obligations issued for long periods, typically 10 to 30 years.

TREASURY NOTE – United States government obligations issued for intermediate obligations, typically 1 to 10 years.

TRUST – With respect to property it is an arrangement whereby one person has the legal title to property being held for the benefit of someone else who has the equitable title to the property.

TWISTING – The practice of inducing a policyowner to replace a policy by providing inaccurate, incomplete, or misleading information.

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UNDERWRITING – The process of selecting risks for insurance and classifying them according to their degrees of insurability so that appropriate rates may be assigned. The process includes rejection of those risks that do not qualify.

UNDERWRITER – An employee of a life insurance company whose job it is to evaluate the insurability and determine the classification of persons applying for insurance protection.

UNIVERSAL LIFE INSURANCE – A form of cash value life insurance that offers both flexible premium payments and flexible death benefits and which reflects current interest earnings. See also Variable Life Insurance.

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VARIABLE UNIVERSAL LIFE – Universal Life Insurance in which the policy cash value is invested in subaccounts as directed by the policy owner.

VLR, VLR/DR – Variable loan rate, variable loan rate/direct recognition.

VARIABLE LIFE INSURANCE – Whole life, or universal life, contracts having values that fluctuate according to the investment performance of the underlying funds. While they have no guaranteed cash value, they often have a minimum guaranteed death benefit. Unlike conventional products, variable products are regulated by the Securities and Exchange Commission and sold with a prospectus.

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WAIVER OF PREMIUM (WP) – A rider under which the insurance company will waive the payment of premiums by the policy owner during periods of total and permanent disability.

WHOLE LIFE INSURANCE – Permanent insurance which provides, at minimum, a level death benefit upon the insured’s death, or a cash endowment upon policy maturity that is equal to the death benefit.

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YEARLY RENEWABLE TERM (YRT) – A term life insurance contract with premiums that increase annually and provide a level death benefit. YRT products provide financial protection only in the event of death, and have no cash value.

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*Guarantees are dependent upon the claims-paying ability of the issuing company.

The definitions contained herein are not intended as all inclusive definitions. They are intended as summaries only for educational purposes and are meant to relate the above referenced terms to uses by National Life Group and its affiliates. The definitions used may be portrayed in limited contexts and not necessarily illustrative of the entire definition or an accurate definition.

This information is not intended as tax or legal advice. Please consult your attorney or accountant prior to acting upon any of the information contained in this correspondence.

National Life Group® is a trade name of National Life Insurance Company and its affiliates. Each company of National Life Group is soley responsible for its own financial condition and contractural obligations.