Life Insurance Definitions
Application for insurance
This is the form on where you state information and answer questions from the
insurance company about yourself and your history. This application along with
information from a medical examination, if taken, from your physicians, any hospitals
you may have visited and investigation are what’s used by the insurance company
to decide whether or not to offer you life insurance and at what rate.
Beneficiary
The person(s) named in the policy to receive the life insurance proceeds upon
the death of the insured.
Cash (Surrender) Value
The amount that is available in cash for loans and that may be available for withdrawals
in a whole life insurance, universal life insurance or survivorship life insurance
policy. Accessing Cash Surrender Value may reduce the death benefit and may increase
the risk of lapse.
Contestability, Contestable Clause
In an insurance there is a clause which explains the conditions under
which the insurer may contest or void the life insurance policy. This contestability
is for a limited period of time which in most states is two years. After that
period of time the insurance company can not contest the policy.
Convertible Term Insurance
Term insurance which can be exchanged (converted), at the option of the policyowner
and without evidence of insurability, for a whole life insurance policy or universal
life insurance policy.
Face Amount
The amount stated on the face of the policy that will be paid in case of death.
It does not include additional amounts payable under accidental death or other
special provisions, or acquired through the application of policy dividends.
Grace Period
Life insurance premiums are due on a certain date, if you are late in paying,
policies allow a period of time where you can still pay your premium and not lose
your polcy. This is the grace period. Most policies allow a grace period of
30 days from the due date. After the grace period, if the premium is not paid,
the policy can lapse i.e. be terminated by the insurance company.
Insurability
Acceptability to the company of an applicant for insurance.
Insurable Interest
See owner of an insurance policy.
Insured or Insured Life
The person on whose life the policy is issued.
Key person life insurance
When one has a key person in a business without whom the business would suffer
financially, key person life insurance is often purchased which helps to reimburse
the company for the business loss incurred by the death of this person.
Level Premium (Life Insurance)
Life insurance for which the premium remains the same from year to year. The premium
is normally more than the actual cost of protection during the earlier years of
the policy and less than the actual cost in the later years. The building of a
reserve is a natural result of level premiums. The payments in the early years,
together with the interest that is to be earned, serves to balance out the underpayment
of the later years.
Life Expectancy
The average number of years remaining
for an individual to live shown at each age based on long term studies by insurance
companies. These statistics as shown on charts called mortality tables..
Life Insurance
A contract between an owner (often the
insured person) and a life insurance company that guarantees the payment of a
stated amount of money on the death of the insured.
Loan (Policy Loan)
A loan made by a life insurance company from its general funds to a policy owner
on the security of the cash value of a policy.
Mutual life insurance company
A life insurance company owned by the policyholders. Policyholders of a mutual
life insurance company may participate in the “divisible surplus” of the life
insurance company as owners. They can receive dividends, most commonly on whole
life policies, which can enhance the cash value, increase the insurance amount
or lower premiums.
Owner of a life insurance policy
A life insurance policy can be owned by the insured person or an individual,
a company or a trust with an insurable interest in the insured person. Insurable
interest means there would be a financial loss by the owner in the event of the
death of the insured person.
Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.
Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer
(see also Dividend.)
Permanent Life Insurance
Any form of life insurance except term; generally insurance that builds up a cash
value, such as whole life. Universal life and whole life are types of permanent
life insurance.
Policy Owner
The person who owns a life insurance policy. This is usually the insured person,
but it may also be a relative of the insured, a partnership or a corporation.
Premiums
Payments to the insurance company to buy a policy and to keep it in force.
Renewable Term Insurance
Term insurance which can be renewed at the end of the term, at the option of the
policy owner and without evidence of insurability, for a limited number of successive
terms. The rates generally increase at each renewal as the age of the insured
increases.
Return of premium life insurance
Also known as return of premium term life insurance, this is term life
insurance for a period of time where one receives a guaranteed return of premiums
paid if you keep the policy for the term period. For example, 20 year return
of premium term would guarantee a return of premium paid after you paid 20 years
of premium. Most of these policies also give a partial return of premium if you
keep the policy for a great part of the years. For more information on return
of premium life insurance, click here.
Second to die life insurance
Life insurance that pays the benefit after two people die. See survivorship
life insurance in this glossary.
Stock life insurance company
A stock life insurance company is owned by stockholders. Contrast this
with mutual life insurance company.
Survivorship life insurance
Life insurance purchased on two individuals, usually man and wife, where
the life insurance benefit is paid after both individuals have died. This type
of life insurance became popular as a solution to paying estate taxes. The estate
tax law allowed a couple to delay paying estate taxes until both had died. Thus,
survivorship life insurance became popular as a less expensive way for heirs to
pay estate taxes. The premiums are less than buying life insurance on one life.
By paying premiums now the theory is that one can “pre-pay” the estate taxes because
of the lump sum that comes in after the second death. For more information on
survivorship life insurance click
here.
Term life Insurance
Term insurance is life insurance coverage for a specified period of time. This
can be at a guaranteed rate or in some cases a guaranteed rate for a period of
time and then a projected rate. Term periods can be for 1 year, 5 years, 10 years,
15, 20 and even 30 years. For example: 30 year level term would guarantee a level
premium for 30 years based on a specified death benefit. Term life insurance is
usually the least expensive form of life coverage, at least initially. After the
initial term period of years, 5,10,15, 20, 30 etc. the policy could terminate
or it can renew at a higher premium. If you are allowed to renew it at a higher
premium (based on your then attained age), it is called renewable term life insurance.
To learn more about term life insurance click
here. For instant term life insurance quotes for you at your age without talking
to an agent, click
here.
Types of life insurance companies
See the definitions in the glossary for mutual life insurance company
and stock life insurance company
Universal life insurance
Universal life insurance is permanent life insurance with premiums that
are not guaranteed. To a certain degree one can “design” a premium on this type
of policy. Universal life insurance often can be set up with a lower premium
initially than whole life insurance. Premiums and values are based on projections
of assumed interest rates, the cost of insurance (also known as mortality cost)
and the insurance company’s expenses. The actual premium paid may increase because
interest rates may go lower or the projected cost of insurance may increase.
For more information on universal life, click here
Waiver of premium
This is an extra or add-in (called a rider in insurance lingo) that can be added
to most individual life insurance policies
which waives (allows you to stop paying) the payment after the insured person
has been disabled (as described and defined in the insurance policy) for a specified
period of time, usually six months. At that time, the six months premium paid
along with future premium payments are waived.
Whole life insurance
Life insurance which has a guaranteed level premium for the rest of one’s
life with no increases in premium, with a guaranteed cash value. There is participating
whole life insurance usually issued by a mutual life insurance company where one
participates as an owner of the company and there is non-participating whole life
insurance issued by a stock life insurance company. To learn more about whole
life insurance click here