Principal Sum
The full AD&D death benefit amount, against which dismemberment percentages are measured.
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Practice This Concept
Which statement best describes the basic function of an annuity?
To liquidate a sum of money by paying it out over time as income, typically for life — An annuity is essentially the reverse of life insurance: instead of creating a lump sum payable at death, it liquidates a principal sum plus interest over a period of time, typically for the annuitant's lifetime. The insurer assumes the risk that the annuitant will live longer than the funds would otherwise last, converting accumulated savings into a steady income stream. This liquidation function is the core concept underlying both the accumulation and distribution phases of the contract.
National insurance concept
A travel accident policy is best classified as:
A limited-benefit accident policy that pays stated amounts for death or injury from an accident while traveling — Travel accident policies are limited-benefit products: they pay specified benefits, such as a principal sum for accidental death or dismemberment, when a covered accident occurs during travel. They do not reimburse all medical expenses and are not intended as comprehensive health coverage. Because the benefit is fixed and the covered exposure is narrow, the premium is low and the product often serves as a supplement sold with other travel or disability products. This limited-benefit classification is part of the standard breakdown of limited policies.
National insurance concept
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