Glossary of Life Insurance Terms and Definitions

AARP Life Insurance

AARP Life Insurance is group life insurance offered by New York Life.

 

Accelerated Benefits Rider

A life insurance rider that allows for the early payment of a portion of the policy’s death benefit should the insured suffer from a terminal illness or injury.

 

Accidental Death and Dismemberment

Insurance providing payment if the insured’s death results from an accident, if the insured accidentally severs a limb above the wrist or ankle joints, or if the insured irreversibly loses his or her eyesight.

 

Accidental Death Benefit Rider

A life insurance policy rider providing for payment of an additional death benefit related to the face amount of the base policy when death occurs by accident.

Agent

An insurance company representative licensed by the state who solicits contracts for insurance, and provides service to the policyholder for the life insurance company.

AICPA Life Insurnace Group life insurance for accountants and Cpa’s form Prudential Life.

Annually Renewable Term

A form of renewable term insurance that provides coverage for one year and allows the insured to renew their coverage each year at a higher price.

Application

A statement of information made to the life insurance company to assess the acceptability of risk, underwriting classification and premium rates for life insurance.

Assignment

The transfer of the ownership rights of a life insurance policy from one person to another person.

Backdating

Backdating is legal method to back-date the “policy date” up to six months, in order to save your age and save you money.

Beneficiary

Person to whom the proceeds of a life policy are payable when the insured dies. The various types of beneficiaries are:

  • Primary beneficiaries are those first entitled to the death benefits
  • Secondary(contingent) beneficiaries are those entitled to death benefits if no primary beneficiary is living when the insured dies.
  • Tertiary beneficiaries are those entitled to the death benefits when no primary or secondary beneficiaries are alive when the insured dies.

Best’s Insurance Report

A ratings guide for the life insurance industry published by A. M. Best, Inc., which  rates life insurance company’s financial strength and claims paying ability.

Broker

An insurance sales representative who, on behalf of his or her clients, solicits life insurance quotes and solicits various kinds of insurance for many life insurance companies.

Buy-Sell Agreement

An agreement among owners in a business which states that a deceased owner’s interest in a business will be sold at a predetermined price. The remaining owners are legally obligated to buy at a price stated in the Buy-Sell agreement. The funding instrument for a buy-sell agreement is a life insurance policy.

Children’s Term Insurance Rider

Provides a small term insurance policy to the insured’s children. The premium is the same for one or more children with the benefits typically between $1,000 and  $10,000.(i.e. child life insurance for child, or children’s life insurance)

Collateral Assignment

Assignment of all or part of a life insurance policy as security for a loan. If the insured dies the creditor is only entitled a death benefit equal to the balance of the loan.

Cash Surrender Value

The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity. The amount is the cash value stated in the policy minus a surrender charge and any outstanding loans.

Conditional Receipt

A conditional receipt provides interim coverage during the underwriting process. The receipt is given to policy owners when they pay a premium at the time of application.

Contingent Beneficiary

Contingent beneficiary (secondary) is a person or persons named to receive proceeds in case the original beneficiary is not alive.

Contestable Clause

A provision in an insurance policy setting forth the conditions under which, or the period of time during which, the life insurance company may contest or void the policy. After that time has lapsed, normally two years, the policy cannot be contested.

Conversion Privilege

Allows the policy-owner, before an original term life insurance policy expires, to elect a conversion option to have a new policy issued that will continue the insurance coverage.

Convertible Term

A term insurance contract that may be converted using a conversion option to a permanent form of insurance without medical examination.

Decreasing Term Insurance

Term life insurance on which the face value slowly decreases in scheduled steps from the date the policy comes into force to the date the policy expires, while the premium remains level. The intervals between decreases are usually monthly or annually.

Disability Income Rider

A type of health insurance coverage, it provides for the payment of regular, periodic income should the insured become disabled from illness or injury.

Disclosure Statement

A comparison form to be given to every applicant considering replacing one life insurance policy with another policy.

Dividend

A refund of part of the premium on participating whole life insurance to reflect the difference between the premium charged and the combination of actual mortality, expense and investment experience. Dividends are not considered to be taxable distributions because they are interpreted as a refund of a portion of the premium paid to the insurance company.

Delivery

The actual placing of a life insurance policy in the hands of an insured.

Double Indemnity

Payment of twice the stated death benefit in the event of loss resulting from specified causes or under specified circumstances.

Evidence of Insurability

A statement or proof of your health which helps the life insurance company decide if you are an acceptable risk for life insurance.

Examination

The medical examination of an applicant for life insurance which is  done by a physician, nurse or paramedical professional appointed  the life insurance company.

Expense

Your policy’s share of the company’s operating costs-fees for medical examinations and inspection reports, underwriting, commissions, advertising, agency expenses, premium taxes, salaries, and rent.

Face Amount

The face amount or death benefit is stated on the face of the policy that will be paid in case of death or at the maturity of the policy.

Free Look Provision

A 10-30 day period of time provided to an insured in order to examine the insurance policy and if not satisfied, to return it to the insurance company for a full refund.

Hybrid Universal Life

This is a form of permanent life insurance which can behaves similar to term coverage with the premium and death benefit guaranteed to a specific age (i.e. age  85, 90, or 100). Hybrid universal life insurance builds very little cash value but, offers you the most affordable long term coverage.

Incontestable Clause

A standard clause in a policy providing that a policy has been in effect for two years, the life insurance company shall not be able to contest the statements contained in the application. In life policies, if an insured lied as to the condition of his health at the time the policy was taken out, that lie could not be used to contest payment under the policy if death occurred after two years.

Insured

The party who is being insured by the life insurance company.

Insurable Interest

For persons related by blood, a substantial interest established through love and affection, and for all other persons, a lawful and substantial economic interest in having the life of the insured continue. An insurable interest is required when purchasing life insurance on another person.

Insurance Company Ratings

There are five major insurance industry ratings services; A. M. Best, Standard & Poor’s, Moody’s, Fitch, and Weiss. These services provide information on insurance company financial performance, stability, and claims paying ability. The best ratings are: A. M. Best= A++, Standard & Poor’s=AAA, Moody’s=AAA, Fitch=AAA, Weiss=A+.

Increasing Term Insurance

Term life insurance in which the death benefit increases periodically over the policy’s term.

Key Person Life Insurance

 Key Person Life Insurance is coverage on the life of a key employee whose death would cause the employer financial loss. This is typically owned by and payable to the employer.

Lapse Rate

The rate at which life insurance policies terminate because of failure to pay the required premiums.

Level Term Insurance

Term coverage is a type of life insurance in which the death benefit and premiums remain unchanged from the date the policy comes into force to the date the policy expires.

Life Expectancy

The probability of an individual living to a certain age according to a insurance companies mortality table.

Medical Information Bureau (MIB)

A data service that collects and stores coded medical information on persons who have applied for insurance from subscribing life insurance companies in the past.

Medical Examination

The medical examination for life insurance  is conducted by a licensed professional. The medical report is part of the life insurance application process, becomes part of the policy contract, and is attached to the policy.

Misstatement of Age

The falsification of the applicant’s birth date on the application for insurance. When discovered, the coverage will be adjusted to reflect the correct age according to the premium paid into the policy.

Mortality

The incidence or frequency of death at your current age.

Mortgage Insurance

A mortgage life insurance policy covering a mortgagor from which the benefits are intended to pay off the balance due on a mortgage upon the death of the insured.

Mutual Life Insurance Company

A life insurance company that is owned by it’s policyholders.

Non-medical Insurance

A contract of life insurance underwritten on the basis of an insured’s statement of health with no medical examination required.

Non-Participating

A life insurance policy in which the life insurance company does not distribute to policy-owners any part of its surplus.

Participating Policy

A life insurance policy under which the  life insurance company agrees to distribute to policy-owners the part of its surplus that its Board of Directors determines is not needed at the end of the business year. The distribution serves to reduce the premium the policy-owners had paid to the insurance company.

Permanent Life Insurance

An umbrella term for life insurance plans that do not expire and combine a death benefit with a savings portion. This savings portion can build a cash value which the policy owner can borrow or withdraw funds to help meet future needs. The two main types of permanent life insurance are whole and universal life insurance policies.

Policy

The legal document stating the terms of insurance contract that is issued to the policy-owner by the life insurance company.

Other Insured Rider

A term rider covering an eligible family member or business member other than the insured that is attached to the base policy covering the insured.

Ownership

All rights, benefits and privileges under life insurance policies are controlled by their owners. Policy owners may or may not be the insured. Ownership may be assigned or transferred by written request of current owner.

Permanent Life Insurance

permanent life insurance policy designed for lifetime coverage, which usually builds cash values, such as whole or universal life insurance.

Pre-authorized Check Plan (EFT)

A premium-paying arrangement by which the policy owner authorizes the life insurance company to draft money from their bank account for the payments.

Preferred Risk

A risk classification for life insurance,  for people whose physical condition, occupation, mode of living and other characteristics indicate a prospect for longevity superior to that of the average longevity.

Premium

The payment required by the life insurance company to keep and insurance policy in force.

Primary Beneficiary

The beneficiary designated by the insured as the first to receive the policy benefits.

Proceeds

Net amount of money payable by he life insurance company at the insured’s death.

Rating

The basis for an additional charge to the standard premium because the person insured is classified as a greater than normal risk usually resulting from impaired health.

Renewable Term

Term insurance that may be renewed for another term period without evidence of insurability.

Replacement Policy

A new policy written with a new life insurance company to take the place of a policy currently in force.

Reinstatement

Restoring a lapsed policy to its original premium paying status, upon payment by the policy owner, of all unpaid premiums and policy loans, and presentation of satisfactory evidence of insurability by the insured.

Rider

A rider os the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy’s conditions are expanded and additional coverage is added, or a coverage or condition is waived.

Risk Classification 

The life insurance application process by which a life insurance company decides how its premium rates for life insurance should differ according to the risk characteristics of age, occupation, sex, and health and then applies the resulting rules to individual applications.

Settlement Options 

The several ways, other than immediate payment in cash, in which a policyholder or beneficiary may choose to have policy benefits paid. These options include the following:

  • Interest Option – death benefit left on deposit at interest with the insurance company with earnings paid to the beneficiary annually.
  • Fixed Amount Option – death benefit paid in a series of fixed amount installments until the proceeds and interest earned terminate.
  • Fixed Period Option – death benefit left on deposit with the insurance company with the death benefit plus interest paid out in equal payments for the period of time selected.
  • Life Income Option – death benefit plus interest paid through a life annuity. Income continues under a straight life income option for as long as the beneficiary lives or whether or not the beneficiary lives, under a life income with period certain option

Secondary Beneficiary

An alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.

Smoker Ratings 

Life insurance companies will give a lower premium rate to consumers who do not smoke or use tobacco. Smokers will pay more for life insurance compared to applicants using alternative forms of tobacco such as chewing tobacco, cigar, or pipe smoking.

Standard Risk

A person who, according to a life insurance company’s underwriting guidelines, is entitled to insurance protection without extra rating.

Substandard Risk

A person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, and occupation.

Suicide Clause

Most life insurance policies provide that if the insured commits suicide within a specified period, usually two years, after the issue date, the company’s liability will be limited to a return of premiums paid.

Term Life Insurance

Protection for a limited number of years and ending without value if the insured survives the stated period, which may be 1, 10, 15.  20, or even 30 years.

Underwriter

  • Life insurance company receiving premiums and accepting responsibility for fulfilling the policy contract.
  • Company employee who decides if the life insurance company should assume a particular risk
  • The agent (field underwriter) who sells you the policy.

Underwriting

The underwriting process by which a life insurance company determines whether it can accept an application for life insurance, and the premium which will be charged to the policyholder.

Uninsurable Risk

Individual not acceptable by the life insurance company for coverage due to excessive risk.

Universal Life Insurance (GUL)

An interest sensitive life insurance policy that builds cash values. The premium payer has the flexibility to vanish the premiums  or have the premiums continue for life.

Waiver of Premium

Rider or provision included in most life insurance policies exempting the insured from paying premiums after insured has been disabled for a specified period of time, usually six months.

Whole Life Insurance

Whole Life Insurance is also known as Ordinary, Standard or Permanent life insurance. Whole life insurance provides insurance coverage for the lifetime of the insured. Whole life insurance policies also provide tax-deferred buildup of cash value, payable upon surrender. Permanent insurance has fixed premiums and death benefits.

Eric Van Haaften, LUTCF is the president of Affordable Life USA. We are a nationally licensed life insurance agency focused on finding our clients custom planning solutions at excellent prices. 1-877-249-1358. eric@affordablelifeusa.com