Life Insurance Terms

Life Insurance Terms

Accelerated Benefit Rider
A life insurance policy benefit that allows the insured or policyowner to receive a percentage of the death benefit in advance if the insured is diagnosed with a terminal illness. Written proof of terminal illness from a medical professional must be obtained before the benefit will pay.

Accidental Death and Dismemberment Rider
A life policy benefit that pays a percentage of the death benefit if the insured is killed in a covered accident or loses sight or limbs as a result of an accident. Very limited in nature, this benefit can be added as a rider on most life insurance policies.

Best Rating Services
An independent rating organization that ranks insurance company’s financial strength and managerial abilities. Please see the various financial ratings of each insurance company when requesting a quote.

Annual Renewable Term Insurance
Annual Renewable Term (ART) is a type of term life insurance that offers a guaranteed rate for one year. Each subsequent year, the policy renews at a higher rate based on the insured’s next age. At some point, the price of annually renewable term gets cost prohibitive.

Beneficiary
An Individual or Individuals, Corporation, or Trust that are entitled to receive the proceeds of an insurance policy in the event that the insured is deceased. Beneficiaries can be named in a number of different ways.

Cash Value
Cash value is the excess accumulation of funds within a whole life or universal life insurance policy. Cash values generally grow tax deferred and can be borrowed if the policy allows. Cash values are not guaranteed.

Children’s Insurance Rider
A rider added to an insurance policy to protect the lives of children. Usually offered in increments of $5,000.00 and generally covers the child to age 18. Not available with all policies.

Conditional Receipt
A conditional receipt is given to an insured that submits money with the initial application for life insurance. It offers immediate coverage, after the medical exam is completed, contingent upon the company’s acceptance of the insured. The terms of the conditional receipt will vary among insurance companies.

Contestability Period
Within the first 2 years of an insurance policy, the insurance company has the right to investigate a death claim for fraud and misrepresentation. The contestability period allows the insurance company to deny claims that are fraudulent. All insurance companies will investigate death claims with the first 2 years. The burden of proof for denying a claim is on the insurance company.

Contingent Beneficiary
The individual or entity that is entitled to receive the proceeds of a life insurance policy if the primary beneficiary is deceased. Can be an individual, several individuals, a corporation, trust, or charitable organization.

Conversion Privilege
This benefit allows the covered individual the opportunity to “convert” or exchange an existing term life insurance policy for a permanent or “whole life” policy without evidence of insurability. The conversion privilege protects an insured’s ability to maintain insurance coverage when outside coverage may not be attainable due to significant health problems. Conversion privilege vary among insurance policies.

Death Benefit
The insurance amount stated in the insurance policy. Can be any amount subject to certain specific limitation set forth by the insurance company. Death benefits are payable on the death of the insured and are payable to the beneficiary or beneficiaries income tax free.

Decreasing Term
Decreasing term is a type of term life insurance where the insurance amount decreases over time. Most decreasing term policies are tied to some form of note or mortgage and as you pay down the mortgage, the insurance amount decreases. These policies were very popular 10-15 years ago; however, level term life insurance is now generally more competitive.

Dividend
Dividends are cash payments credited to whole life policies generally as a percentage of current cash value. They are not guaranteed. Dividends are paid by mutual insurance companies and are considered to be a return of premium. Dividends can be used to increase cash value, reduce the current premium, or buy additional insurance.

Evidence of Insurability
When purchasing any life insurance policy, you must prove that your health is reasonably good. Proving your health is your evidence of insurability. Once your policy is in place, no further evidence of insurability is required to maintain the policy.

Exclusions
Exclusions are specific events or circumstances where the insurance company has the right to deny an insurance claim. They are always listed in the policy. Common exclusions include suicide within the first 2 years and fraud. Please review your policy for exclusions as all companies include different exclusions in their policy language.

Face Amount
The amount of insurance listed in the policy and applied for by the purchaser. The face amount is the same as the Death Benefit. Face amounts can be any amount subject to certain specific limitations set forth by the insurance company.

Flat Extra Rating
A flat extra rating is an extra charge that is applied to some policies where the insured has very adverse health conditions such as cancer. Flat extra charges are usually applied as a dollar cost per thousand. For example, an individual that had cancer within the last 3 years may be charged a flat extra rating of $5.00/$1,000 of insurance for the first 4 policy years. The flat extra charge allows the insurance company to offer a policy where they might otherwise have to decline to make an offer.

Insurability
Insurability refers to an individual’s good health and ability to obtain life insurance. If an individual is unable to obtain life insurance due to bad health, the individual is considered to be uninsurable.

Insured
The insured is the covered individual on any life insurance policy. The insurance policy covers the life of the insured.

Modal Premium
The modal premium is the payment method selected by the insured. There are generally 4 different Modal Premium options including Annul, Semiannual, Quarterly, and Monthly Bank Draft. There is usually a higher incremental cost for all modal premiums other that Annual. In other words, you may pay 2-6% more for Semiannual, Quarterly, and Monthly Bank Draft options.

Moody’s Investor Service
Moody’s Investor Service is an independent insurance rating service that rates the financial strength of all insurance companies.

Level Premium Period
The level premium period generally refers to the length of guaranteed premiums for level term life insurance policies. For example, insurance companies currently offer 5, 10, 15, 20, 25, and 30-year level premium policies.

Level Term Insurance
Level term insurance offers a fixed price and fixed death benefit for a predetermined time period usually 5, 10, 15, 20, 25, or 30 years.

Permanent Life Insurance
Permanent life insurance is “whole life” insurance. Permanent insurance is more costly than term because it builds cash value and is designed to last a lifetime. The premiums and death benefits are generally fixed for the insured’s lifetime.

Policy Owner
The policy owner is an individual, trust or entity that has control of or owns the policy. The policy owner has rights to changing the beneficiary, payment modes, and payout options.

Preferred Risk
Preferred risk refers to the general health of the individual applying for insurance. All insurance companies have several categories of risk that allow the insurance company to properly price the individual risk associated with each application for life insurance. A Preferred Risk is considered to be an individual in very good health with an above average life expectancy.

Premium
The payment amount necessary to maintain the policy. Can generally be paid annually, semiannually, quarterly, or monthly bank draft.

Primary Beneficiary
The primary beneficiary is the individual(s), trust, or other entity that receives the proceeds of the insurance policy in the event of the insured’s death.

Rider
A rider is an additional feature or benefit added to a policy at an additional cost. Riders are usually available for disability, children’ insurance, an additional purchase options. Riders may vary among insurance companies.

Second-to-die (Survivorship) Life Insurance
Second-to-die (Survivorship) life insurance is a form of whole life insurance that covers two lives and pays the proceeds at the death of the second insured. This type of policy is used primarily for estate planning.

Standard and Poors Rating Services
An independent insurance rating service that ranks the financial strength of all insurance companies.

Standard Risk
Standard risk is an underwriting classification that refers to the overall health of the individual applying for life insurance. A standard risk is an individual that is in average health with an average life expectancy.

Sub-Standard Risk
Sub-Standard risk is an underwriting classification for individuals that have significant health concerns. Generally, sub-standard risks have a shorter than average life expectancy due to a health impairment and will therefore pay higher premiums for their insurance than preferred or standard risk individuals.

Suicide Provision
All life insurance policies have a standard suicide provision that states there will be no insurance proceeds paid in the event that the insured commits suicide within the first 2 policy years. During this 2-year period, the insurance company’s liability is limited to premiums paid.

Term Life Insurance
Term life insurance is “temporary” coverage usually offered in level periods of 5, 10, 15, 20, 25, and 30 years. Term life insurance is designed to cover specific risks for a specific time period. Term insurance is the cheapest form of life insurance.

Underwriter
The underwriter (insurance company) is an employee of the insurance company and is the individual responsible for reviewing applications and medical histories and accessing the applicants risk to the company. The underwriter is the person that determines the rate class that each applicant will obtain based on the applicant’ medical history.

Underwriting
Underwriting is the process where the insurance company reviews each individual’s application and medical history and determines the rate class that each individual will obtain. Underwriting is the most crucial part of the entire process of applying for life insurance.

Universal Life Insurance
Universal life insurance is a combination of whole life insurance and term life insurance. The pricing of the policy is based on annual renewable term life insurance and increases each year. The premiums are flexible and are designed to cover the costs of the insurance with the difference being applied to a cash value that grows at a given interest rate. Universal life polices are more expensive than term and cheaper than whole life. Some universal life policies offer long term guarantees but most do not. If considering universal life, make sure than you buy a policy hat offers long-term guarantees.

Variable Universal Life Insurance
Universal life insurance is a combination of whole life insurance and term life insurance. The pricing of the policy is based on annual renewable term life insurance and increases each year. The premiums are flexible and are designed to cover the costs of the insurance with the difference being applied to a cash value that grows at a given interest rate. Universal life polices are more expensive than term and cheaper than whole life. Some universal life policies offer long term guarantees but most do not. If considering universal life, make sure than you buy a policy hat offers long-term guarantees.

Waiver of Premium Rider
The waiver of premium rider can be added to the basic life policy and covers the insured in the event that he or she becomes disabled. If disability occurs and the rider is in effect, the insurance premiums are waived for the period of disability. Generally, this benefit becomes effective after the insured had been disabled for 6 months and lasts until the insured is no longer disabled.

Weiss Research Rating Services
An independent insurance rating service that ranks insurance companies for safety. Weiss Research is the most conservative of all rating services.

Whole Life Insurance
Whole life insurance offers fixed premium payments for life and builds guaranteed cash value. Whole life is the most expensive form of life insurance. Purchasers of whole life insurance are “self-funding” their insurance program and want to “own” their life insurance