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Insurance Terms
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Life Terms
A good consumer is an educated one. Need
to know more about life insurance?
This is the page to be on. If
you don't see a term on this page, simply email us and we'll be happy to get you
the information you request.
Accidental Death Benefit:
An extra death benefit amount that is paid out in addition to the face amount of
the policy if the insured dies as the result of an accident.
Accelerated Death Benefit Option:
In the event of terminal illness, usually 1 year or less, the insured has the
option to withdraw some of the death benefit for his personal use.
Age:
Most insurance companies calculate age by using the age you are nearest to.
Example: Insured is 45 and it is January, and the insured's birthday is in
March. If the insurance company
were calculating age nearest, the insured would be considered age 46 for the
purpose of calculating rates.
Assignment:
The transfer of the ownership rights of a Life Insurance policy from one person
to another.
Aviation Hazard:
The extra hazard of death or injury resulting from participation in aeronautics.
It usually does not include fare-paying passengers in licensed aircraft.
Backdating:
A procedure for making the effective date of a policy earlier than the
application date. Backdating is often used to make the age at issue lower than
it actually was in order to get a lower premium. State laws often limit to six
months the time to which policies can be backdated.
Beneficiary:
The person designated to receive the death benefit when the insured dies.
Business Insurance:
Policies written for business purposes, such as key employee, buy-sell, business
loan protection, etc.
Buy-Sell Agreement:
An agreement among owners in a business which states that under certain
conditions, i.e., disability or death, the person leaving the business or in
case of death, his heirs are legally obligated to sell their interest to the
remaining owners, and the remaining owners are legally obligated to buy at a
price fixed in the Buy-Sell agreement. The funding vehicles are either
disability or life insurance or both.
Cash (Surrender) Value:
The amount that is available in cash for loans and that may be available for
withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may
increase the risk of lapse.
Children's Term Insurance Rider:
Provides term insurance to the insured's dependents. It is a flat premium for
all his dependents and the benefit usually is not less than $1,000 or more than
$10,000.
Collateral Assignment:
Assign all or part of life insurance policy as security for a loan.
If the insured dies, the creditor would receive only the amount due on
the loan.
Conditional Binding Receipt:
This is the more exact terminology for what is often called a binding receipt.
It provides that if premium accompanies an application, the coverage will be in
force from the date of application, or medical examination, if any, whichever is
later, provided the insurer would have issued the coverage on the basis of the
facts revealed on the application, medical examination and other usual sources
of underwriting information. This coverage usually has a limit until the policy
is delivered and all delivery requirements are met. A life and health insurance
policy without a conditional binding receipt is not effective until it is
delivered to the insured and the premium is paid.
Contestable Clause:
A provision in an insurance policy setting forth the conditions under which or
the period of time during which the insurer may contest or void the policy.
After that time has elapsed, normally two years, the policy cannot be
contested. Example: Suicide.
Contingent Beneficiary:
A person or persons named to receive policy benefits if the primary beneficiary
is deceased at the time the benefits become payable.
Convertible (conversion):
A policy that may be changed to another form by contractual provision and
without evidence of insurability. Most term policies are convertible into
permanent insurance.
Credit Insurance:
Insurance on a debtor in favor of a creditor to pay off the balance due on a
loan in the event of the death of the debtor.
Cross Purchase:
A form of business life insurance in which each party purchases life insurance
on each other.
Decreasing Term:
A form of life insurance that provides a death benefit which declines throughout
the term of the contract, reaching zero at the end of the term. Almost never
sold any more because level insurance is so much less expensive.
Delivery:
The actual placing of a life insurance policy in the hands of an insured.
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.
Double
Indemnity:
Payment of twice the basic benefit in the event of loss resulting from specified
causes or under specified circumstances.
Entity Agreement:
A buy-sell agreement in which the company agrees to purchase the interest of a
deceased or disabled partner.
Evidence of Insurability:
The statement of information needed for the underwriting of an insurance policy.
Examination:
The medical examination of an applicant for Life Insurance.
Examiner:
A physician, nurse, or para-med appointed by the medical director of a life
insurance company to examine applicants.
Expiry:
The termination of a term life insurance policy at the end of its period of
coverage.
Face:
The first page of life insurance policy.
Face Amount:
The amount of insurance provided by the terms of an insurance contract, usually
found on the face of the policy. In a life insurance policy, the death benefit.
Fixed Benefit:
A benefit, the dollar amount of which does not vary.
Free Look:
A period of time (usually 10, 20, or 30 days) during which a policyholder may
examine a newly issued individual life insurance policy, and surrender it in
exchange for a full refund of premium if not satisfied for any reason.
Incontestable Clause:
A clause in a policy providing that a policy has been in effect for a given
length of time (two or three years), the insurer shall not be able to contest
the statements contained in the application.
In life policies, if an insured lied as to the condition of his health at
the time the policy was taken out, that lie could not be used to contest payment
under the policy if death occurred after the time limit stated in the
incontestable clause.
Insurability:
Acceptability to the insurer of an application for insurance.
Insurable Interest:
You have an insurable interest in the insured if upon the death of the insured
you would suffer financial loss.
Insurance:
A device for reducing risk by transferring the risks of several individual
entities to an insurer. The insurer agrees, for consideration, to pay for the
loss in the amount specified in the contract.
Insurance Policy:
The printed form, which serves as the contract between an insurer and an
insured.
Insured:
The party, who is being insured. In life insurance, it is the person because of
his or her death the Insurance company would pay out a death benefit to a
designated beneficiary.
Insurer:
The company that pays out the death benefits if the insured dies.
Irrevocable Beneficiary:
A beneficiary that cannot be changed without his or her consent.
Key Person (Key Man) Insurance:
Insurance on the life of a key employee whose death would cause the employer
financial loss. The policy is owned and payable to the employer.
Lapsed Policy:
An Insurance policy, which has been allowed to expire because of non-payment of
premiums. In a cash value life insurance policy such as Whole Life or Universal
Life the policy could expire because the cash value account reached a zero
balance and no premium payments are being made to replenish it.
Level Term Insurance:
A type of term policy where the face amount remains the same from the effective
date until the expiration date. For example, the 5, 10, 20, 25 and 30 year
terms. However, after the level premium period most policies turn into Annual
Renewable Term where the premiums increase annually.
Life Expectancy:
The average number of years remaining for a person of a given age to live as
shown on the mortality or annuity table used as a reference.
Life Insurance:
An agreement that guarantees the payment of a stated amount of monetary benefits
upon the death of the insured.
Loan (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.
Medical Information Bureau (MIB):
A data service that stores coded information on the health histories of persons
who have applied for insurance from subscribing companies in the past. Most life
insurers subscribe to this bureau to get more complete underwriting information.
Mortality Charge:
The charge for the element of pure insurance protection in a Universal Life the
policy could expire because the cash value account reached a zero balance and no
premium payments are being made to replenish it.
Mortality Cost:
The first factor considered in life insurance premium rates. Insurers have an
idea of the probability that any person will die at any particular age: this is
the information shown on a mortality table.
Mortality Rate:
The number of deaths in a group of people usually expressed as deaths per
thousand.
Mortality Table:
A table showing the incidence of death at specified ages.
Mortgage Insurance:
A life insurance policy covering a mortgagor from which the benefits are
intended to pay off the balance due on a mortgage upon the death of the insured.
Non-medical (Non-Med):
A contract of life insurance underwritten based on an insured's statement of his
health with no medical examination required.
Not Taken:
Policies applied for and issued but rejected by the proposed owner and not paid
for.
Occupational Hazard:
A condition in an occupation that increases the peril of accident, sickness, or
death. It usually will mean higher premiums.
Ownership:
All rights, benefits and privileges under life insurance policies are controlled
by their owners. Policy owners may or may not be the insured. Ownership may be
assigned or transferred by written request of current owner.
Paid-up Insurance:
Insurance that will remain in force with no need to pay additional premiums.
Permanent Life Insurance:
A term loosely applied to Life Insurance policy forms other than Group and Term,
usually Cash Value Life Insurance, such as Whole Life Insurance or Universal
Life.
Policy Fee:
There are two calculations to determine the premium for term insurance. The
Policy Fee which is a flat fee added to each policy and the rate per thousand
times the number of thousands of death benefit. The policy fee is usually the
same for all ages and amounts.
Policy owner:
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 partnership or a corporation.
Preauthorized
Check Plan:
A premium-paying arrangement by which the policy owner authorizes the insurer to
draft money from his or her bank account for the payments. This is usually done
on a monthly basis.
Preferred Risk:
Any risk considered to be better than the standard risk on which the premium
rate was calculated. Some companies are now offering degrees of preferred to
reduce their rates even more. An extremely healthy person can now get
extraordinary low rates.
Premium:
Payments to the insurance company to buy a policy and to keep it in force.
Primary
Beneficiary:
The beneficiary named as first in line to receive proceeds or benefits from a
policy when they become due.
Provisions:
Statements contained in an insurance policy which explain the benefits,
conditions and other features of the insurance contract.
Rated:
Coverage issued at a higher rate than standard because of some health condition,
or impairment of the insured.
Renewable Term:
Term insurance that may be renewed for another term without evidence of
insurability. Level term usually turns into renewable term with increasing
premiums after the level premium period.
Replacement:
A new policy written to take the place of one currently in force.
Revocable Beneficiary:
The beneficiary in a life insurance policy in which the owner reserves the right
to revoke or change the beneficiary. Most policies are written with a revocable
beneficiary.
Rider:
An attachment to a policy that modifies its conditions by expanding or
restricting benefits or excluding certain conditions from coverage.
Standard Risk:
A risk that is on a par with those on which the rate has been based in the areas
of health, physical condition, and morals. An average risk, not subject to rate
loading or restrictions because of health. Stock Purchase Agreement:
A formal buy-sell agreement whereby each stockholder is bound by the agreement
to purchase the shares of a deceased stockholder and the heirs are obligated to
sell. This agreement is usually funded with life insurance.
Stock Redemption Agreement:
A formal buy-sell agreement whereby the corporation is bound by the agreement to
purchase the shares of a deceased stockholder and the heirs are obliged to sell.
This agreement is usually funded with life insurance.
Term Insurance:
The type of life insurance that provides protection for a specified period of
time. Insureaquote quotes 5 year, 10 year, 15 year, 20 year, 25 year and 30 year
term.
Underwriter:
A person trained in evaluating risks and determining rates and coverage for
them. When an application is submitted to the insurer, it is the underwriter who
gathers all the necessary information to determine whether a person is a
preferred risk, a standard risk, or rated.
Underwriting:
It is what the underwriter does to determine the class of risk an applicant will
be placed in.
Universal Life:
An interest sensitive life insurance policy that builds cash values. The premium
payer has control on how the policy is structured. He has the flexibility to pay
no more premiums based on assumptions that are not guaranteed or have the
premiums continue for life. It is a matter of juggling 3 variables, the assumed
interest rate, the cash value and the premium payment plan. The policy is
interest sensitive and, if interest rates change from the assumed interest, it
will affect the other two variables. In the past, many Universal Life policies
were structured assuming a higher interest rate then was actually received,
therefore, most of them have under performed. If you have a Universal Life
policy, you should have it evaluated to see if it needs to have the premiums
adjusted to get it back on track. A fourth variable that has not been a factor
but could be in the future, and the owner should be aware of, is the Mortality
variable. Universal Life policies are usually structured assuming current
mortality rates. The insurance companies reserve the right to change those
rates.
Waiver of Premium:
A provision of a life insurance policy which continues the coverage without
further premium payments if the insured becomes totally disabled.
Whole Life Insurance:
Life insurance that is kept in force for a person's whole life as long as the
scheduled premiums are maintained. All Whole Life policies build up cash values.
Most Whole Life policies are guaranteed as long as the scheduled premiums are
maintained. The variable in a Whole Life policy is the dividend, which could
vary depending on how well the insurance is doing. If the company is doing well
and the policies are not experiencing a higher mortality than projected,
premiums are paid back to the policyholder in the form of dividends.
Policyholders can use the cash from dividends in many ways. The three main uses
are: It can be used to lower or vanish premiums, it can be used to purchase more
insurance or it can be used to pay for term insurance.
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