Life Insurance Glossary
June 19, 2008 by Be Safe Insure
Filed under Life
The field of Life insurance has a language of its own. This is a Life Insurance glossary with the most common life insurance definitions explained.
Life Insurance Definitions
Beneficiary
The person(s) named by the owner of 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/or 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. Withdrawals may be subject to surrender charges and could have a permanent effect on the cash value. Loans reduce the cash value and death benefit by the amount of the loan outstanding plus interest. If the policy is surrendered, the cash surrender value is paid to the policy owner.
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 policy-owner and without evidence of insurability, for a whole life insurance policy or universal life insurance policy.
Dividend
A return of part of the premium on participating insurance that is based on the insurer’s investment, mortality and expense experience. Dividends are not guaranteed.
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.
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 cash value is a natural result of level premiums over a long period. Term policies generally have level premiums for the initial term, though they generally have no cash value. 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.
(Policy) Loan
A loan made by a life insurance company from its general funds to a policyowner on the security of the cash value of a policy. Generally, loans reduce the policy’s death benefit and cash value by the amount of the outstanding loan plus interest.
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. Coverage can last a lifetime. Universal life and whole life are types of permanent life insurance.
Policyowner
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 trust, 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.
Stock life insurance company
A stock life insurance company is owned by stockholders. Contrast this with mutual life insurance company.
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.
Types of life insurance companies
See the definitions in this glossary for mutual life insurance company and stock life insurance company
Universal Life Insurance
A flexible premium life insurance policy under which the policyowner 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. In other words, 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.
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
Whole Life Insurance is a basic type of insurance. It has a guaranteed level premium for the rest of one’s life with no increases in premium, with a guaranteed cash value. Premiums must generally be paid for as long as the policy is in force. There are 2 types: Participating whole life insurance is usually issued by a mutual life insurance company where one participates as an owner of the company. Non-participating whole life insurance issued by a stock life insurance company.
source: lifeinsure and metlife
