Glossary

Life Insurance Terms

A

Administrative Expense:

The life insurance company's operating costs. It covers salaries, medical examinations, building, rent, underwriting, advertising, printing costs, agency expenses, and premium taxes. These expenses get lump sum together and are used to calculate dividends and premium rates.

 

Accelerated Death Benefits:

The death benefits are available prior to the death of the insured. Some insurers may call these benefits “living benefits”, they are usually accessible in cases of chronic or terminal illness aka “end of life benefits”.

 

Accidental Death Insurance:

This is generally an add-on (rider) to a regular insurance policy; accidental death insurance is purely for accidents. The death benefit is only paid if the insured dies as a result of an accident.

 

Accidental Death and Dismemberment Insurance:

An insurance policy that pays out only if the insured dies, becomes blind or is dismembered in an accident.

 

Accrued Interest:

Interest that has been earned and recognized but not yet paid out or the borrower has not received the payment.

 

Agent:

A person licensed by the state of California to negotiate insurance contracts. An agent can be independent and represent multiple companies, or they can be a captive agent who sells policies for only one company.

 

Amount of Insurance:

The coverage is issued by a life insurance company.

Annuity:

A contract that pays a fixed sum of money at regular intervals, usually for life.

 

Annuity Certain:

A contract that pays an income for a set number of years and will pay the annuitants beneficiary or estate if the annuitant dies before the end of the payment term.

 

Application:

A statement of information made by a person applying for life insurance.

Assignment:

The legal transfer to another person or to an entity like a financial institution of the claim rights an individual has on an insurance policy.

B

Beneficiary:

The individual who receives proceeds from a life insurance policy at the death of the insured. A beneficiary who is less than 18 years old must be represented by a legal Guardian or public official. Anyone can be named as a beneficiary.

 

Billing Date:

The day of the month that the life insurance premium is due

 

C

Cash-Surrender Value:

The cash amount you would get if you voluntarily terminate coverage before the policy becomes payable by death or maturity. The amount is the cash-value stated in the policy, minus a surrender charge, any outstanding loans, and interest on those loans. The cash-value represents the savings component of a life insurance policy since you can access the money relatively quickly if required.

 

Conversion Right:

The right granted by some term life insurance policies to change the current policy of an individual to a permanent insurance policy within a certain timeframe, without giving proof of insurability.

 

Cost of Insurance:

The amount an individual must pay for his or her life insurance policy, also known as a premium. The monthly charge for life insurance policy fluctuates depending on the insured person's health, age, sex, and other considerations such as lifestyle and the nature of the person's profession.

 

Coverage:

For a period of time, life insurance covers the policyholder.

 

Coverage End Date:

The day the insurance coverage terminates.

 

Coverage Start Date:

The day the insurance coverage becomes effective.

D

Death Benefit:

The amount of money paid to the beneficiary when the policyholder dies.

Disability Waiver of Premium:

A condition that states that the life insurance company will not require the insured to pay the usual recurring fee to maintain the life insurance policy if the insured person becomes disabled.

 

Disclosure Statement:

A document explaining the details of the policy for the benefit of the consumer.

 

Dividend:

The return that some policyholders will receive as part of the distribution of a portion of an insurance company's profits.

E

Evidence of Insurability:

A statement of the prospective policyholder’s physical health and other information, such as assets and income, helps the insurance company decide whether the applicant is eligible for insurance, the amount of risk they pose to the company, and what premium the company will charge.

F

Face Amount:

The amount of insurance that an individual purchases for coverage.

 

Financial Needs Analysis:

The analysis reviews the policyholder’s current financial goals, with the objective of helping to determine how much insurance he or she might require.

 

Fixed amount option: an option for death benefits to be paid in a series of fixed-amount payments until the proceeds and interest earned run out.

 

Fixed Period Option: the option and a life insurance policy that makes death benefit payments for a set length of time. The death benefit is left on deposit with the insurance company and accrues interest. The life insurance company makes payments of the specified amount until the benefit and interest run out.

 

Free Look Provision:

The amount of time a life insurance applicant has to look over the insurance policy.

G

Grace Period:

A period of time a policy remains valid even after a premium payment is due and goes unpaid.

 

Group Life Insurance:

Life insurance is often offered by an employer to its employees. Some group life policies accept all employees regardless of the medical condition.

I

Incontestable Clause:

The clause in a life insurance policy that enables an insurance company to cancel the contract for up to two calendar years from the original policy issuing date if the policy Holder did not disclose critical information would have made him or her ineligible for coverage.

 

Insurance Policy:

The legal document that the life insurance company issues to the policy Holder and that outlines the terms of the insurance policy.

 

Insurable Interest:

Prove that a person who takes out a life insurance policy on someone else has a substantial and lawful emotional or financial interest in that person's continued well-being. An insurable interest is mandatory when applying to purchase life insurance on another person.  

 

Insured:

The person who is insured by a life insurance policy.

 

Insurer:

The life insurance company

 

Interest Option:

The primary beneficiary of a life insurance policy chooses to receive only interest payments, allowing the original death benefit principle to pass to a secondary beneficiary when the primary beneficiary dies.

 

Intestate:

A situation when someone dies without having a written will.

 

J

Joint First-to-Die:

A life insurance policy that provides coverage for two people and makes payments to the survivor as soon as the first person dies.

 

Joint Last-to-Die:

A life insurance policy that provides coverage for two people and makes payment only after both people have passed away. This type of policy is mostly used to cover estate expenses in order to protect value for children in a situation in which there might be significant taxes due at the time of the last parent's demise.

 

L

Lapse:

The closure of an insurance policy because of the failure to pay the premiums within the defined grace period.

Last Conversion Date:

The last day of a policy can be converted from term life insurance to whole life insurance to avoid losing money paid on premiums.

 

Life Expectancy:

The age to which a person is likely to live, according to actuarial life tables.

 

Life Income Option:

An arrangement in which the payout from a life insurance policy will go to the beneficiary as equal payments paid for the duration of the beneficiary's life. The payments will continue even if the principle has been exhausted.

 

Life Insurance:

A form of protection from the risk that guarantees payment upon the death of the policyholder.

 

Lifetime Coverage:

An insurance policy that has a coverage term equal to the lifetime of the insured person.

 

Living Benefits:

An advance cash payment of a portion of the insurance before the insured person dies. It allows for financial assistance to the insured individual while he or she is still alive.

 

Living Will:

A will that details the author's desires regarding their medical treatment in case they are no longer able to express informed consent.

 

M

Medical Report:

A report on the health of the life insurance applicant that is filled out by a physician and based on a physical examination of the prospective policyholder.

 

Medical Information Bureau (MIB):

A nonprofit group of life insurance companies that deters fraud by alerting member companies of potential fraud.

 

Mortality:

The rate of death at a given age. This is used to calculate life insurance risk.

 

Mortgage Life Insurance:

A form of life insurance that makes remaining mortgage payments directly to the lender when the homeowner dies.

N

Non-Forfeiture Clause:

A clause in an insurance policy with cash value that entitles the insured to all or a portion of the benefits, or a partial refund on premiums paid if the insured person misses premium payments and the policy lapses as result. This type of clause is typically only in effect for a limited period of time.

 

Non-Smoker Rates:

A lower rate acknowledging that nonsmokers are expected to live longer than smokers.

 

O

Owner:

The individual who purchased the life insurance policy.

 

P

Paid-Up Insurance:

A life insurance policy for which all premiums have been paid and the coverage is still in force.

 

Permanent Life Insurance:

In life insurance policy that provides coverage until the death of the insured person.

 

Policy:

The legal document, issued by the life insurance company to the policy Holder, stating the terms of the life insurance contract.

 

Premium:

The payment required by the life insurance company in order for the insurance policy to remain in effect. Depending on the terms agreed upon, the premium might be paid at once or in a series of regular payments.

 

R

Reduced Paid-Up Insurance:

A life insurance policy in which a customer uses a cash-value from a surrendered non-forfeiture policy to purchase a reduced amount of fully paid-up insurance of the same kind of the surrendered policy.

 

Replacement:

The process of buying a new individual life insurance policy that will replace an existing individual policy.

 

Rider:

A provision of an insurance policy that can be purchased separately to provide further benefits beyond those included in the original policy, at an additional cost.

 

S

Settlement Options:

The ways a policy Holder or beneficiary can choose to receive benefits from a policy.

 

Standard Risk:

The risk is considered normal at standard rates by an underwriter and does not require an extra rating.

 

Substandard Risk:

The risk is considered above average for an individual who does not meet insurance policy requirements when applying. Insurance companies charge higher premiums to customers with substandard risk.

 

Suicide Clause:

The clause in a life insurance policy indicates the policy coverage amount will not be paid out if the insured person takes his or her own life within a set. Immediately after the policy is issued.

 

Supplementary Contract:

A contract allowing the life insurance company to retain the cash sum payable under an insurance policy. In return, the company makes payments in accordance with the terms of the contract.

 

Surrender Charges:

The fee deducted from a life insurance policy payout when a policyholder terminates the policy for cash value.

T

Term:

The number of years for which the insured person is covered.

 

Term Life Insurance:

A life insurance policy for a specific time period stipulates the insurance company must deliver a tax-free payment if the insured person dies within that timeframe.

 

U

Underwriter:

The person who determines whether the life insurance applicant is insurable, and what the rate should be for that person.

 

Underwriting:

The procedure in life insurance company uses to decide whether to insure an applicant and at what rate.

 

Universal Life Insurance:

A type of permanent life insurance policy that covers the low-cost protection of term life insurance as well as a savings element, which is invested to allow for cash value to build up overtime period the death benefit, savings element, and premiums can be reviewed and altered by the policy Holder as his or her life circumstances change.

 

V

Variable Life Insurance:

A form of permanent life insurance that provides permanent coverage to the beneficiary upon the death of the insured person. It is usually the most expensive type of cash value insurance because it allows the policyholder to allocate parts of the premium dollars to a separate account within the insurance company's portfolio Furthermore, federal security laws regulate variable policies as security contracts because they carry investment risks these policies must therefore be sold with a prospectus.

 

Variable Universal Life: Cash-Value life insurance offering both payments upon the death of the insured and an investment feature the premium amount for this type of life insurance is flexible and can be changed depending on the insureds life circumstances and needs.

 

W

Whole Life Insurance:

A type of life insurance that has both permanent life insurance and an investment component. Upon the death of the insured person, the life insurance company makes a payment to the beneficiary. The investment component accumulates a cash value that the policy Holder may withdraw or borrow against.

 

Will:

A legal document detailing how a person’s assets should be distributed upon his or her death.