Life Insurance Glossary

 

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A

Accidental Death Benefit
Benefit paid on an accidental death in addition to face amount of policy. Canít exceed $300,000 or face amount of policy. Requires additional premium.

Accelerated Death Benefit Option
Free option that allows insured to withdraw up to 25% of the death benefit (not to exceed $250,000) in event of terminal illness lasting a year or less.

Age
Most insurers calculate age by the nearest birthday. Example: itís January and a 45-year-old insured, whose birthday is in March, is being rated for insurance. Rate determination would be based on age 46.

Assignment
Transfer of life insurance ownership rights from one person to another.

Aviation Hazard
Risk factor that applies to death or injury to people participating in aeronautics, not fare-paying passengers in a licensed aircraft.  Requires additional premium or waiving of certain benefits.

B

Backdating
State laws sometimes allow the effective date of a policy to be backdated by no more than six months. Backdating is used in order to get a lower premium.

Beneficiary
Recipient designated to receive the benefit on death of insured.

Business Insurance
Coverage designed for business purposes, i.e., key employee, buy-sell, business loan protection, etc.

Buy-Sell Agreement
Agreement among business partners that obligates heirs of a partner to sell that partnerís portion of the business, at a price fixed in the Buy-Sell Agreement, under certain conditions, i.e., disability, death, partner vacates the business. Can be funded by disability or life insurance or both.

C

Children's Term Insurance Rider
Provides term insurance to insured's dependents for flat premium. Benefit is $1,000 to $10,000.

Collateral Assignment
Vehicle for assigning life insurance policy as security on a loan. In event of death, creditor would receive amount due on the loan.

Conditional Binding Receipt
Assures that coverage is in force from date of application or medical examination, whichever is later, if premium accompanies life or health insurance application. Applicable only if insurer would have issued the coverage on basis of application, medical examination and other standard underwriting information. Coverage is temporary until policy delivery/receipt. 
Without a conditional binding receipt, a life or health insurance policy isnít effective until delivered to the insured and the premium is paid.

Contestable Clause
Provision defining conditions/time period during which insurer may contest or void a policy. After that time has lapsed, normally two years, policy canít be contested. Example: suicide.

Contingent Beneficiary
Person/persons to receive benefits if primary beneficiary is deceased.

Convertible (conversion)
Allows policy to be changed to another form without evidence of insurability. Most term policies can be converted to permanent policies.

Credit Insurance
Insurance in favor of a creditor. Pays off loan balance in event of debtorís death.

Cross Purchase
Enables business partners to purchases life insurance on each other.

D

Decreasing Term
Little-used life insurance providing death benefit to cover term of a contract. Term insurance is preferred option.

Delivery
Placement of life insurance policy in the hands of  insured.

Double Indemnity
Assures payment of twice the basic benefit in event of loss from specific cause or circumstances.

E

Entity Agreement
Buy-sell agreement in which company agrees to purchase interest of deceased/disabled partner.

Evidence of Insurability
Statement of information needed by insurer to underwrite an insurance policy.

Examination
Medical examination for life insurance application.  Provided by physician, nurse, or para-medic appointed by insurance company medical director.

Expiry
The end of term life insurance coverage.

F

Face
First page of a life insurance policy.

Face Amount
Amount of insurance provided by an insurance contract, usually found on the policy face.

Fixed Benefit
Dollar amount of insurance benefit which doesnít vary.

Free Look
Period of time (usually 10, 20, or 30 days) during which policyholder may examine a new life insurance policy and surrender it in exchange for full premium refund.

I

Incontestable Clause
Defines length of time policy has been in effect (usually two or three years) after which insurer cannot contest statements contained in the application. Example: If a life insurance applicant lied regarding his/her health condition in the policy application, that lie couldnít be used to contest payment if death occurred after the time limit stated in the incontestable clause.

Insurability
Acceptability to the insurer of an insurance application.

Insurable Interest
A party has an ďinsurable interestĒ if, upon an insuredís death, that party would suffer financial loss.

Insurance
Formal social device for reducing financial risk by transferring risks of several individual entities to an insurer. The insurer agrees, for a premium, to pay for the loss in the amount specified.

Insurance Policy
Printed form that serves as contract between insurer and insured.

Insured
Party who is being insured. In life insurance, itís the person whose death would trigger payment of a death benefit by the insurance company to a designated beneficiary.

Insurer
The company that pays the death benefit if the insured dies.

Irrevocable Beneficiary
A beneficiary who cannot be changed without his/her consent.

K

Key Person (Key Man) Insurance
Insurance owned by and payable to an employer on the life of a key employee whose death would cause the employer financial loss. 

L

Lapsed Policy
Policy that has expired due to premium nonpayment.

Level Term Insurance
Type of term policy where face value remains the same from the effective date to the expiration date. In the context of the policies presented by Instant Quote, it also means a period of time when premiums would remain level; i.e., the 5, 10, 15, 20, and lifetime term. After the level premium period most policies revert to Annual Renewable Term where premiums increase annually.

Life Expectancy
Average number of years remaining for a person of a given age to live according to mortality or annuity tables.

Life Insurance
Agreement that guarantees payment of a stated monetary benefit upon death of the insured.

M

Medical Information Bureau (MIB)
Subscriber data service that maintains coded health history information of persons who have applied for insurance in the past. Most life insurers are subscribers.

Mortality Charge
Charge for the element of pure insurance protection in a life insurance policy.

Mortality Cost
First factor considered in establishing life insurance premium rates. It reflects probability that any person will die at any particular age.

Mortality Rate
The number of deaths in a group of people - usually expressed as deaths per thousand.

Mortality Table
Table showing the incidence of death at specific ages.

Mortgage Insurance
Life insurance policy covering a mortgagor. On death of the insured, benefits will pay off the balance due on a mortgage. Level term life insurance is recommended.

N

Nonmedical (Non-Med)
Life insurance underwritten on the basis of an insured's statement of his/her health. No medical examination is required.

Not Taken
Policies applied for and issued but rejected and not paid for by the proposed owner.

O

Occupational Hazard
Occupational condition that increases possibility of accident/sickness/death. Usually requires higher premium.

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

P

Permanent Life Insurance
Term loosely applied to Life Insurance policy forms other than Group and Term; usually Cash Value Life Insurance, such as Whole or Universal Life.

Policy Fee
Flat fee for term insurance based on a rate per thousand times the number of thousands of death benefit. Usually, itís the same for all ages and amounts.

Pre-authorized Check Plan
Premium payment arrangement by which policy owner authorizes insurer to draft monthly premium payment from his/her bank account.

Preferred Risk
Any risk considered better than the standard risk on which the premium rate was calculated. Some companies offer degrees of preferred to further reduce rates.

Premium
Price of insurance protection for a specified risk for a specified period of time.

Primary Beneficiary
Person named as first in line to receive proceeds from an insurance policy.

Provisions
Statements in an insurance policy explaining benefits, conditions, other insurance contract features.

R

Rated
Coverage issued at higher than standard rate due to health condition or impairment of insured.

Renewable Term
Term insurance that can be renewed without evidence of insurability. Level term usually reverts to renewable term with increasing premium on conclusion of the level premium period.

Replacement
New policy written to replace one currently in force.

Revocable Beneficiary
Policy ownerís right to revoke or change beneficiary. Most policies include a revocable beneficiary.

Rider
Policy attachment that modifies policy conditions by expanding or restricting benefits or excluding certain conditions.

S

Standard Risk
A risk on par with those where the rate is based on health, physical condition and morals. An average risk, not subject to rate loading or health restrictions. At one time the standard risk was the best class of risk. With improved underwriting skills, insurers are able to further define health risks and offer better rates to preferred risks.

Stock Purchase Agreement
Formal buy-sell agreement obligating stockholders to purchase shares of a deceased stockholder and obligating heirs to sell. Usually funded with life insurance.

Stock Redemption Agreement
Formal buy-sell agreement obligating corporation to purchase shares of a deceased stockholder and obligating heirs to sell. Usually funded with life insurance.

T

Term Insurance
Life insurance that provides protection for a specified period of time. It usually builds no cash value. 

U

Underwriter
Technician trained to evaluate risks and determine rates and coverage.

Underwriting
The function of determining the class of risk.

Universal Life
Interest-sensitive life insurance policy that builds cash values. Premium payer controls policy structure. He/she may eliminate premiums (pay no more premiums based on assumptions that are not guaranteed) or continue premiums for life. Itís a matter of juggling three variables: assumed interest rate; cash value; premium payment plan.
A change in interest rates (from the assumed interest) will affect the other two variables. In the past, many Universal Life Policies were structured assuming a higher interest rate than was actually received, therefore, most of them have under performed. Universal Life policyholders should have occasional policy evaluation to determine need for a premium adjustment.
The Universal Life owner should be aware of a possible fourth variable: Mortality. Universal Life policies are structured assuming current mortality rates, which can change. This is another reason for occasional policy evaluation. 

W

Waiver of Premium
Life insurance provision that continues coverage without further premium payments if insured becomes totally disabled.

Whole Life Insurance
Life insurance thatís kept in force for an insuredís whole life as long as premium payments are maintained. Whole Life policies build up cash values. Dividends vary depending on how well the insurance is doing. If the company is doing well and policies arenít experiencing a higher than projected mortality rate, premiums are paid back to the policyholder as dividends. Policyholders can use the dividends in many ways. The three main uses are: (1)lower/eliminate premiums; (2) purchase more whole life insurance; (3) purchase term insurance.

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