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Life Insurance Glossary

Life Insurance Glossary Life Insurance FAQ Life Insurance Planning Tools

Accidental Death Benefit
A provision added to a life insurance policy for payment of an additional benefit in case of death as a result of an accident. This provision is often called “double indemnity.”

Accelerated Benefits Rider
A life insurance rider that allows for the early payment of some portion of the policy’s face amount should the insured suffer from a terminal illness or injury.

Attained Age (Age Last Birthday)
A method for determining the age of the proposed insured for premium calculations. This method uses the proposed insured’s actual age in years.

Automatic Premium Loan
A provision in a life insurance policy that any premium not paid by the end of the grace period (usually 31 days) will be automatically paid by a policy loan if there is sufficient cash value.

Beneficiary
The person or financial instrument (e.g., a trust fund) named in the policy as the recipient of the death proceeds.

Cash Value (Cash Surrender Value)
The amount available in cash upon surrender of a policy before it becomes payable upon death or maturity.

Conditional Receipt
A receipt given to the applicant when they a premium is paid at the time of application. Interim coverage during the underwriting process is provided subject to terms and conditions of the receipt.

Contingent Beneficiary
Person or persons named to receive the death proceeds if the primary beneficiary is not alive. Also referred to as a secondary or tertiary beneficiary.

Convertible Term Insurance
Term insurance that offers the policyholder the option to exchange his term policy for a permanent plan of insurance, such as whole life or universal life, without evidence of insurability.

Cost Index
A way to compare the costs of similar plans of life insurance. A policy with a smaller index number is generally a better buy than a comparable policy with a larger index number.

Cost-of-Living Rider
An option that permits the policyholder to purchase increasing term insurance coverage. The death proceeds increase by a stated amount each year to coincide with an estimated increase in the cost of living.

Current Assumption Whole Life
A variation of universal life insurance, this product involves fixed premiums and fixed death benefits. Its cash value growth depends on market conditions. If they are favorable and if premiums paid in the policy’s early years are large enough, premiums for one or more years in the future may be reduced to zero.

Dividend
An amount of money returned to the holder of a participating policy. The money is a partial refund of the premium paid. It results from actual mortality, interest and expenses that were more favorable than expected when the premiums were set.

Face Amount
The amount stated on the face of the policy that will be paid in case of death or at maturity. It does not include dividend additions or additional amounts payable under accidental death or other special provisions.

Grace Period
A period (usually 31 days) following each premium due date, other than the first due date, during which an overdue premium may be paid. All provisions of the policy remain in force throughout this period.

Guaranteed Insurability
An option that permits the policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

Increasing Term Insurance
Term life insurance in which the death benefit increases periodically over the policy’s term. Usually purchased as a cost of living rider to a whole life policy.

Insured
The person on whose life an insurance policy is issued.

Lapsed Policy
A policy terminated at the end of the grace period because of nonpayment of premiums. (See Nonforfeiture Values.)

Level Premium Insurance
Insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year, and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Level Term Insurance
Term coverage on which the face value and premiums remain unchanged during the term period.

Mortality Table
A statistical table showing the death rate (probability of death) at each age.

Mutual Life Insurance Company
A life insurance company owned by policyholders who share in the company’s surplus earnings.

Nonforfeiture Values
The value of the policy if cancelled and paid in cash to the policyholder or continued in another form of insurance. May also be used for automatic premium loans if the required premiums are not paid.

Non-participating Insurance
Insurance on which no dividends are paid.

Paid-up Insurance
Insurance on which all required premiums have been paid.

Participating Insurance
Insurance on which the policyholder is entitled to share in the surplus earnings of the company through policy dividends that reflect the difference between the premium charged and the cost to the company of providing the insurance.

Policy
The printed document issued to the policyholder by the company stating the terms of the insurance contract.

Policy Loan
The amount that can be borrowed by the policyholder from the issuing company at a specified rate of interest. The cash value of the policy is used as collateral for the loan. In the event the policyholder dies with the debt partially or fully unpaid, the insurance company deducts the amout borrowed, plus any accumulated interest, from the face amount payable.

Premium
The payment, or one of the regular period payments, that a policyholder makes to own an insurance policy.

Premium Mode
The frequency in which premiums are paid, usually monthly, quarterly, semi-annually or annually. Typically, the total annual premium is slightly higher when payments are spread out over the course of the year as opposed to being paid all at once.

Primary Beneficiary
The beneficiary designated by the insured as the first to receive the policy's death benefit.

Producer
An authorized representative of an insurance company who sells and services insurance contracts.

Reinstatement
The restoration of a lapsed policy to its full inforce status. The company requires evidence of insurability and payment of past due premiums plus interest.

Renewable Term Insurance
Term insurance providing the right to renew at the end of the term for another term or terms, without evidence of insurability. The premium rates increase at each renewal as the age of the insured increases.

Rider
An amendment to an insurance policy that modifies the policy by expanding or restricting its benefits or excluding certain conditions from coverage.

Settlement Option
One of several ways, other than immediate payment in a lump sum, in which the insured or beneficiary may choose to have the policy proceeds paid.

Stock Life Insurance Company
A life insurance company owned by stockholders who share in the company’s surplus earnings.

Term Insurance
A plan of insurance that covers the insured for only a certain period of time (the term), not for his or her entire life. The policy pays death benefits only if the insured dies during the term.

Term Rider
Term insurance that is added to a whole life policy at the time of purchase or that may be added in the future.

Underwriting
The process of classifying applicants for insurance by identifying such characteristics as age, sex, health, occupation and hobbies. People with similar characteristics are grouped together and are charged a premium based on the group’s level of risk. The process includes rejection of unacceptable risks.

Universal Life Insurance
A flexible premium life insurance policy under which the policyholder may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at varying rates.

Variable Life Insurance
A form of permanent life insurance, variable life insurance provides permanent protection to the beneficiary upon the death of the policy holder. This type of insurance is generally the most expensive type of cash value insurance because it allows you to allocate a portion of your premium dollars to a separate account comprised of investment funds within the insurance company’s portfolio such as stocks, bonds, equity funds, money market funds and bond funds. In addition, because of investment risks, variable policies are considered securities contracts and are regulated under the federal securities laws; therefore, they must be sold with a prospectus.

Waiver of Premium
A provision that sets certain conditions under which an insurance policy would be kept in full force by the company without the payment of premiums. It is used most frequently for those policyholders who become totally and permanently disabled, but may be available in certain other cases.

Whole Life Insurance (Straight Life or Permanent Life)
A plan of insurance for life, with premiums payable for a person’s entire life.

 

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