NonMedTermLife.com / Glossary
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A
Absolute Assignment
The complete transfer of all the benefits, rights and liabilities of a life insurance policy from the owner to another party. In contrast to a collateral assignment where the ownership rights of the policy are transferred only for the duration of the outstanding loan.
Accelerated Death Benefit
When a portion of the death benefit of a life insurance policy is paid prior to death it is considered “accelerated.” Typical reasons a policy may be accelerated is for diagnosis of a terminal illness when the insured individual has less than 12 months to live.
Accidental Death Benefit
A life insurance policy stipulation that increases the death benefit amount if death occurs due to non natural causes. Accidental death might be anything from a car accident to a snake bite. Can often be added onto the base plan of a life insurance policy as an extra rider that will double the death benefit, “double indemnity.”
Actuary
The person who uses probability and statistics to determine what rate the insurance company needs to charge each individual for their life insurance policy.
Adverse Selection
The tendency of those who are in poor health to seek out life insurance as they feel they have a greater chance of dying than the “average” person. Insurance companies must guard against adverse selection so that they experience a typical number of claims each year.
Annual Renewable Term (ART)
Term life insurance that must be renewed at one year intervals. The premium will generally increase as each year passes.
Assignment
The transfer of ownership, rights, benefits and liabilities of the insurance policy to another entity.
Attained Age
A term used to refer to the age of the insured individual at a future date. For example, someone who wishes to convert a term life insurance policy to a permanent life insurance policy 5 years after he qualified for the term life will be able to convert at rates based on his current “attained age.”
B
Backdating
The ability to give a lower rate on a life insurance policy by making the policy date a few days before the insured person had experienced an age change that raised his premium rate. Premiums are generally due for the period between the policy date and the current date, however the lower rate over the life of the life insurance policy will allow the insured to save money every year.
Beneficiary
The recipient of a life insurance policy proceeds. The beneficiary can be an individual, more than one individual, a trust, or an estate. It is generally best to not allow the estate to be beneficiary as there may be unintended tax consequences.
Broker
An individual licensed to sell insurance who is independent and able to “shop” amongst many different insurance companies to find her clients the best policies for their particular needs.
Business Insurance
Life insurance can be used for business purposes in many ways. Key Man insurance protects the company from the financial loss of a valuable employee. Life insurance can also be used to fund a Buy-Sell agreement between owners of a company.
C
Cash Value
Unique to permanent life insurance policies such as Whole Life Insurance and Universal Life Insurance. Cash value refers to cash build up within a life insurance policy that can be accessed by the policy owner in the form of a loan or withdrawal.
Claim
For Life Insurance, a claim is triggered when the insured person dies. The beneficiary of the policy will then notify the life insurance company that the insured has died and provide a death certificate. After processing the claim the life insurance company will pay the beneficiary the death benefit amount of the policy.
Collateral Assignment
A life insurance policy can be used as collateral for a loan. Using a life insurance policy as loan collateral ensures that the lender will be paid the money they are owed if the borrower should pass away without paying it all back. A collateral assignment is only in effect so long as the loan is outstanding. This is in contrast to an absolute assignment where the policy is in full control of the entity to which it has been assigned.
Conditional Receipt
If an initial premium is collected with a life insurance application a conditional receipt is given to the policy owner as evidence of monies paid. In the event that the individual proposed for coverage dies before the underwriting process is complete, the life insurance company will continue to underwrite the individual as if they are still alive. So long as the life insurance company finds that the proposed insured would have met their requirements for life insurance coverage and the first full premium was paid, then the life insurance company will have to honor the claim and pay the beneficiary the death benefit.
Contestability Period
The period of time (two years in most states) that a life insurance company is allowed to challenge a death claim before paying the death benefit to the beneficiary. If the insured dies during the Contestability Period it does not mean a claim won’t be paid, it simply means that the life insurance company has the right to investigate the claim to ensure there was no misrepresentation or fraud on the application that had gone undetected. After the Contestable Period has passed, the Life Insurance Company is obligated to pay the death benefit to the beneficiary without dispute.
Contingent Beneficiary
If the beneficiary of a life insurance policy dies before the insured person dies then the contingent beneficiary will receive the death benefit. The contingent beneficiary is second in line to the death benefit after the primary beneficiary.
Conversion Privilege
Found only on term life insurance policies, a conversion privilege allows the owner of the term life insurance policy to exchange the term policy for a permanent life insurance policy without having to prove continued good health.
D
Death Benefit
The amount of money a life insurance policy is worth if the insured person dies. The death benefit can also be referred to as “face amount.”
E
Evidence of Insurability
Before a life insurance policy is approved, the life insurance company must verify that the applicant meets sufficient standards of health to qualify for coverage.
Exclusions
Specified in each individual life insurance policy, exclusions are certain events or situations that are not covered by the life insurance policy. Most exclusions are found only during the Contestability Period.
F
Free Look Period
Once a policy is approved by the life insurance company and delivered to the owner, a Free Look Period begins which allows the new owner of the policy to inspect the document and satisfy himself as to its stipulations and coverage. If the owner decides the policy is not appropriate for his needs he may return the policy for a full refund of any premiums paid. The Free Look period is generally a minimum of seven days and may extend up to 30 days. The individual policy must be consulted to determine the length of time allowed.
G
Grace Period
Some life insurance policies allow a certain number of days after a policy premium is due in which premium can be paid without the life insurance policy lapsing. The grace period for policies is varied and your particular policy should be consulted.
I
Illustration
A document provided by the insurance company that demonstrates how a policy will perform over time. The illustration will take into account varying interest rates and other factors to exemplify the length of time a policy stays in force and the cash value accumulation of a policy. An illustration is most commonly used with Universal Life Policies.
In Force
A life insurance policy that has premiums paid up to date and has not lapsed due to non payment.
Irrevocable Beneficiary
A beneficiary designated in a life insurance policy that cannot be changed without the written consent of the named beneficiary.
K
Key Person Insurance
Life insurance that insures the life of an invaluable employee and will pay the company or business the death benefit if the employee dies. The death benefit will allow the company to find and train a replacement for the vital position the employee held in the company and help make up any financial loss the company experiences upon loss of the employee.
L
Lapse
If life insurance premiums are not paid the life insurance policy will generally go through a grace period and then enter a lapsed state. Once a policy has lapsed there is no life insurance coverage in effect and a death benefit will not be paid if the previously insured person dies.
Level Premium Insurance
Life insurance where the premium is guaranteed not to increase for the duration of the policy.
Level Term Insurance
The death benefit amount of a policy is guaranteed to stay the same for the duration of the policy.
Life Expectancy
The number of years that an individual is expected to continue to live based upon their current age. Actuaries calculate this based on statistics and probability.
Life Insurance
An insurance policy that pays a single monetary benefit upon the death of the insured individual to a selected beneficiary.
M
Medical Examination
A health exam completed by a licensed health professional such as a nurse or doctor on behalf of a life insurance company to determine the relative health of the person applying for life insurance. Most often the life insurance medical exam will include checking height, weight, blood pressure, collecting a small blood and urine sample and completing a two page health questionnaire.
Medical Information Bureau
A membership corporation maintained by life insurance companies in Canada and the United States. The bureau handles confidential health information that is important to underwriting approval or denial decisions. By sharing this coded information with one another the life insurance companies will be alerted if there is an omission of information from the applicant.
Mortgage Insurance
Any life insurance policy whose death benefit will help cover the outstanding balance of a mortgage note if the borrower dies. Some life insurance companies offer more relaxed underwriting guidelines for life insurance policies specifically designated as mortgage insurance.
N
Non Medical Life Insurance
A life insurance policy that does not include a medical exam as a requirement for life insurance coverage to be issued.
P
Permanent Life Insurance
Can be either Whole Life or Universal Life insurance. This type of life insurance policy does not have a specific end date and will remain in force so long as premiums are paid as required in the policy. Sometimes permanent life insurance is referred to as “cash value” life insurance.
Policy Owner
The individual or entity who controls a life insurance policy and can elect to change the beneficiary, borrow cash value from the life insurance policy and make other controlling decisions. Most often the insured person is also the owner of the life insurance policy, but a spouse or other entity can also own life insurance coverage on another person.
Premium
The amount of money required to keep a life insurance policy in force so that if the insured person dies the policy is active and the death claim will be paid. Premium amount is affected by a wide range of factors such as the amount of death benefit purchased, the age of the insured person, whether or not the insured person uses tobacco and how long the policy will stay in force.
R
Rating Classes
Used to determine the proper premium amount an individual must pay for his life insurance. Rate classes vary from Super Preferred for individuals with impeccable personal health, family health history and other factors, Standard rate class for those in “normal” health and Table ratings where additional premium is added to allow for those individuals who are insurable, but due to a certain health condition or conditions present a higher risk of mortality. There are also premium rate classes for tobacco users.
Return of Premium (ROP)
A type of term life insurance that will refund the premiums paid for the life insurance policy to the policy owner if the insured does not die during the term of life insurance coverage.
Revocable Beneficiary
Refers to any beneficiary that can be changed at the will of the life insurance policy owner. The policy owner does not have to consult or notify the revocable beneficiary that he or she is no longer the beneficiary of the life insurance policy
Rider
A life insurance policy add-on that provides additional benefits to the insured person, or possibly insures the lives of additional people, such as spouses and children. Other additional benefits include accidental death benefit, waiver of premium and disability insurance. Most riders require additional premium.
S
Second-To-Die
A single life insurance policy that insures the lives of two individuals (generally husband and wife) but only pays the death benefit when the 2nd individual dies. This type of coverage is usually used to help with estate tax issues that develop when an estate is distributed.
Single Premium Life Insurance
Life Insurance that requires only one premium payment to be made. The buyer of Single Premium Life Insurance needs to be aware that this type of life insurance can become a Modified Endowment Contract and should use caution when purchasing this type of life insurance that it is appropriate for their needs.
Suicide Clause
Provides a time limit that a life insurance policy proceeds will not be paid to the beneficiary if the cause of death is self inflicted. The suicide clause generally does not last more than two years and in certain states is even less time.
Surrender
When a life insurance policy is no longer wanted by the policy owner her may surrender the policy. If the policy has any cash value the cash value will be returned to the owner after any early termination fees have been deducted. A life insurance policy is no longer active once it has been surrendered.
T
Term Life Insurance
Life insurance that has premiums due for a specific number of years. If the insured dies during the specified time of coverage the face amount of the policy will be paid to the beneficiary. If the insured outlives the time for coverage the policy death benefit is no longer payable.
U
Universal Life Insurance
A type of permanent life insurance policy that provides a cash value component along with the death benefit. Premiums are placed in the cash value account and then deducted to pay for the cost of the death benefit.
V
Variable Life Insurance
A type of permanent life insurance policy where the cash value component is placed in various investment accounts with the intent of securing higher interest and returns for the policyowner. The cost of the death benefit is deducted from the cash accounts.
W
Whole Life Insurance
A type of permanent life insurance policy that provides a guaranteed death benefit and premium. The premiums are payable for the entire life of the insured person.
Will
A legal document expressing a person’s wishes on the distribution of his estate after her death. |
