I switched careers in 2005. After six years as an attorney, I joined an independent general agency as a brokerage manager and producer. When I left the law, I thought I was free of an idiosyncratic legal vocabulary, which includes many Latin, French, and Old English terms.
But, as it turns out, in insurance and financial planning, I couldn’t escape the complexities of industry jargon. Admittedly, many insurance terms are intentionally meant metaphorically to evoke what they actually sound like, but when introduced to you all at once, it can be a bit perplexing. Some interesting examples:
Cafeteria Plan: This is a type of employee benefit plan pursuant to IRS Code Section125. Participants may choose among two or more benefits consisting of cash and qualified benefits. This sounds like something that involves left-over chocolate pudding and a plastic tray.
Life Insurance Trust: This is a legal entity with a life insurance policy as the asset, allowing the grantor of the policy to exempt the death benefit from his or her taxable estate. This sounds like believing in the honesty of your life insurance policy.
Q-Tip Trust: This is a Qualified Terminable Interest Property Trust. It allows one to take advantage of the unlimited marital deduction but still have some control where the assets go after the surviving spouse’s death. This sounds like something that involves cleaning out your ears.
Q-Dot Trust: This is a type of trust that allows taxpayers who are not U.S. citizens to claim the marital deduction for estate-tax purposes. This sounds like the special at the local supermarket, or a character from a 1980s video game.
Intentionally Defective Grantor Trust: This is an estate planning device with a purposeful flaw that ensures that the individual continues to pay income taxes, but for estate tax purposes, the value of the grantor’s estate is reduced by the amount of the asset transfer. This sounds like a case of industrial sabotage.
Decant: This is the ability of trustees to change the terms of a trust by transferring assets to a new trust. This sounds like something an oenophile does while having a romantic dinner.
Life Insurance Corridor: This is the amount of pure life insurance above the accumulation value that allows a policy to qualify as insurance for tax purposes. This sounds like a long hallway leading to a bright light.
Universal Life: This is a type of flexible premium permanent insurance, which sometimes offers guarantees. This sounds like something cosmic, or perhaps, life insurance for all citizens.
Whole Life- This is a life insurance policy that is permanent and guaranteed to last your entire life if the policy is paid, building significant cash value. This sounds like something you win at Pac-Man when you score 10,000 points.
Split Dollar: This is an agreement between two parties, usually an employer and employee in which they share and split the policy. This sounds like a destruction of currency, which I was always told was a federal crime.
Loan Regime: This is a term concerning taxation of split-dollar policies which governs collateral assignment arrangements, where the non-owner (usually the employer) pays the premium on a policy the insured owns. This sounds like a kingdom governed by usurers.
Interpolated Terminal Reserve: This is the method by which the reserves on life insurance policies are determined between anniversaries. This is used to value a policy for estate and/or gift tax purposes. This sounds like something involving a large airplane hangar.
Boot: This is property or money received as additional consideration in regard to a tax-free exchange of property. For example, if the loan on an old policy is canceled by the insurer when that policy is exchanged, the loan amount canceled is taxable boot. This sounds like footwear worn in the Old West.
Group Carve Out Plan: This is a type of group term life insurance designed to appeal to well-paid executives by improving their employer-sponsored life insurance coverage. This sounds like an activity that takes place at the Thanksgiving table or with a Jack-O-Lantern.
Welfare Benefit Plan: This is a type of employer-sponsored employee plan under IRS Section 419(e) that provides a range of benefits to employees. These plans are intended to provide additional financial stability for employees during their retirement. This sounds like part of the social safety net.
Chartered Life Underwriter: This is a respected professional designation earned after completing many high-level courses on a broad range of topics, including insurance planning, estate planning and taxation. This sounds like something that has to do with underwriting, or at least something chartered.
I am sure others in this industry have their own lists of confusing lingo. I hope you enjoyed mine. I have to go now and help my client decide whether to purchase a MetLife of Connecticut or a Prudential Life of New Jersey policy.
Did I mention that my client lives in New York?