Life Insurance Terminology You Should Know
“Life insurance is a type of insurance, or risk protection, that provides payment to a designated beneficiary after the policyholder’s death. Life insurance helps you protect your loved ones should you pass on unexpectedly. The benefits of life insurance are numerous, but if you’re new to life insurance policies, you may be unsure of where to start.
As you’re researching the best life insurance policies for you and your family, you may encounter some terms that are new to you, or that you’ve heard before but that are confusing. Here are some life insurance terminology definitions to keep in mind.
What Are the Different Types of Life Insurance?
Life insurance is not one-size-fits-all. There is a variety of life insurance depending on factors like your financial needs, health and medical history, age and more. Here’s a primer of the different types.
Term Vs. Permanent Life Insurance
Term life insurance is a life insurance policy that covers the policyholder for a specific term, or amount of time. The policyholder determines the term of the life insurance policy, which typically ranges from 10 to 30 years and can increase in 5-year increments. Term life insurance is one of the most affordable types of life insurance.
Compared to term life insurance, which is limited to a specific amount of time, permanent life insurance is a type of life insurance policy that provides the policyholder and loved ones with life-long protection. Some types of permanent life insurance include the ability to earn cash value, which can be accessed while the policyholder is alive.
Whole Vs. Universal Life Insurance
Whole life insurance is a type of permanent life insurance policy that covers the policyholder at a locked-in rate as long as they live. Whole life insurance builds cash value over time.
Unlike whole life insurance that locks you in at one rate for the rest of your life, universal life insurance is a type of permanent life insurance policy that provides policyholders with the flexibility to increase or decrease the coverage amount, as long as it’s approved by the life insurance provider. This type of permanent insurance policy may be beneficial for policyholders who expect their financial situation to change over time.
Types of Permanent Life Insurance
Guaranteed Issue Whole Life Insurance is a type of whole life insurance policy that is guaranteed to an applicant, without the requirement of health questions or a medical exam. Some types of life insurance policies require a medical examination. During a medical exam, a medical technician will evaluate the potential policyholder’s health, which may include taking blood and urine samples and/or performing an EKG/ECG.
The guaranteed issue type of life insurance policy is designed to cover end-of-life expenses such as funeral costs, medical bills and credit card debt, to protect loved ones from future financial burdens. Guaranteed issue life insurance includes living benefits, which are benefits paid when the policyholder experiences a chronic or terminal illness.
Quality of Life insurance is a life insurance policy that provides both death benefits and living benefits. Living benefits, also known as Accelerated Benefit Riders, are benefits paid to the policyholder while he or she is still living to cover situations like chronic illness, critical illness or terminal illness.
Accidental Death and Dismemberment (AD&D) insurance provides benefits to a policyholder’s beneficiaries if the policyholder is seriously injured or killed in a covered accident. Serious injuries include losing a limb, suffering blindness or being paralyzed in a covered accident. Covered accidents generally include injury involving work-related machinery, falls, drowning, fires and vehicles.
When deciding on a life insurance policy, think about how long you want the policy to last and how much you want to pay for life insurance. Talk with a life insurance policy advisor for personalized recommendations for you and your family.
What Are the Types of Life Insurance Beneficiaries?
A life insurance beneficiary is a person the life insurance policyholder designates as the person who will receive life insurance policy benefits. The beneficiary or beneficiaries can range from being individuals to organizations. A beneficiary may be a:
- Loved one
- Non-profit organization
A life insurance policyholder may select a single beneficiary or multiple beneficiaries. Life insurance beneficiaries may be changed while the policyholder is alive by contacting the life insurance provider.
A life insurance contingent beneficiary is a secondary beneficiary who will receive benefits if the primary life insurance beneficiary is not living when benefits are paid out. Life insurance policyholders may also name a tertiary beneficiary, in case the secondary beneficiary has also passed on when benefits are to be paid.
It’s important to research the rules in your state regarding beneficiaries. Choose a beneficiary you want to help, or an organization that has meaning to you, like a self-owned business. Align your choice of beneficiary with what you have listed in your will.
Life Insurance Definition Glossary
Life insurance helps you protect your loved ones should you pass on unexpectedly. The benefits of life insurance are numerous, but if you’re new to life insurance, you may be unsure of where to start. As you’re researching the best life insurance policies for you and your family, here are some life insurance terminology definitions to keep in mind.
- Accelerated Death Benefit
- An optional or included provision in a life insurance policy (such as our Quality of Life Insurance) that allows a specified percentage of the death benefit (less than 100%) to be paid prior to the insured’s death. Certain qualifications must be met to receive the benefit.
- An insurance industry math expert who uses statistics, tables, and other figures to determine risk classifications.
- Life Insurance Agent
- An authorized and licensed representative of an insurance company who solicits and services insurance contracts. Also known as an Associate or Life Insurance Agent.
- Life Insurance Application
- A written form provided by an insurance company that is typically completed by the insurer’s agent and, in the case of most life insurance policies, also by its medical examination company. The life insurance application form provides information about the physical condition, occupation and avocation of the proposed insured. The policy application is signed by the applicant (typically, but not always, the insured) and becomes a part of the information an insurance company considers when deciding whether or not, and on what terms and conditions, a policy should be issued.
- Life Insurance Beneficiary
- A life insurance beneficiary is the person who will receive the policy benefits upon the death of the insured. You may select one beneficiary, such as a spouse, or have multiple beneficiaries. Plus, if you desire, you can add or change your beneficiaries at any time simply by calling the life insurance company.
- Life Insurance Contingent Beneficiary
- A contingent beneficiary is the individual(s) designated to receive a death benefit in the event the primary beneficiary(ies) is/are no longer living at the time the insured or annuitant dies.
- Life Insurance Carrier
- The life insurance company that issues and manages a policy. The life insurance carrier is responsible for underwriting the policy, collecting payments, and providing benefits in the event of a valid claim.
- Cash Value
- The funds available to a policyholder at the time a policy is surrendered to the carrier. Cash value typically can be built into policies that are intended to last a lifetime such as whole life or universal life.
- Coverage Amount / Face Amount
- The amount that the policy will pay to the insured’s beneficiaries in the event of the death of the insured. Find out what may be right for your situation..
- A policy may contain a provision providing that under certain circumstances the policy may be exchanged for another life insurance policy, typically without further underwriting requirements. For instance, term insurance can be converted to whole life or, in some cases, another form of permanent life insurance.
- Date of issue
- The effective date of the policy or contract as issued by the insurer.
- Evidence of Insurability
- Proof of a person’s physical condition, occupation, or other factors, utilized by an insurance company to determine the acceptability of the applicant for insurance.
- Face Amount
- Amount paid in the case of death of the policy holder or at maturity of a policy. Learn more about how much coverage may be right for you.
- In Force
- The life insurance phrase to describe a status of your policy. If your term life insurance policy is “In Force”, then the premium payments have been made and you are currently protected.
- Insurable Interest
- Individuals related (by blood or otherwise) to a policyholder who have substantial economic interest in the continued well being of said policyholder.
- The “insured” is the person who is covered by a life insurance policy.
- Issue Date
- The date upon which a policy is issued to the insured by the insurance carrier.
- A situation when a policy owner doesn’t pay premiums and coverage terminates at the end of the unpaid premium’s grace period.
- Length of Coverage/Term Length
- Length of time, or term, that you choose to have term life insurance coverage. Typically, term life insurance is issued in 5 year increments, such as 10, 15, 20 or 30 years. But it is also possible to get a term life insurance policy tailored to your specific needs. For example, you can get a 17-year term life insurance policy to protect your loved ones until your mortgage is paid off.
- Try our Term Life Insurance Calculator to help estimate your needs.
- Life Insurance Medical Examination
- A requirement for some types of life insurance policies, in which a medical technician will verify your medical history, height, weight, blood pressure, pulse, and collect urine and blood samples. The technician may also perform an ECG/EKG if necessary. Medical exams are conducted by medical professionals, generally at your home or place of work.
- Medical Information Bureau (MIB)
- An independent entity that collects and stores medical data on life and health insurance applicants. The information is exchanged among member insurance companies upon written authorization from the insured. Its purpose is to guard against fraud and concealment by helping insurers discover pertinent, yet undisclosed, health facts.
- Misstatement of Age
- Falsification of one’s date of birth during the application process.
- Rate of death.
- Occupational Hazards
- Risks and danger encountered during the course of one’s regular job duties, which may be a factor considered during the underwriting process.
- Life Insurance Policy Proceeds
- The amount of money payable at the time of a policy holder’s death or at a policy’s maturity date.
- Life Insurance Premium
- A premium is the payment you make to the life insurance company for your life insurance coverage.
- Life Insurance Premium Mode
- Premium payments can typically be made monthly, quarterly, semi-annually or annually. The time period you choose is known as your “premium mode”.
- Proposed Insured
- The proposed insured is the person who will be covered by a life insurance policy that is currently going through underwriting. In other words, this person’s life insurance policy is not yet in force. (see also: Insured).
- Rate Class
- A “rate class” is the classification assigned to you during the underwriting process that indicates what you will pay for your term life insurance coverage.
- Rated (Table Rated)
- A rated policy is one issued on a substandard risk with higher-than-standard premiums.
- The purchase of further coverage at the end of a term life insurance policy.
- An option for a policy owner to reinstate coverage after a lapse based on the insured submitting evidence of insurability and the policy owner paying back premiums plus interest.
- Life Insurance Rider
- A written agreement at may increase the premium you pay to the insurance company.Examples of riders include:
- Accelerated death benefit – An optional provision in a life insurance policy that provides for a specified percentage of the death benefit to be paid prior to the insured’s death in the event a doctor certifies that the insured’s life expectancy is limited (usually 12 months or less).
- Accidental death benefit – A benefit that provides coverage for loss of life due to an accident that was the direct cause of death.
- Automatic increase rider – An optional policy rider in a universal life insurance policy that provides scheduled increases in face amount based on a designated percentage, beginning in a designated policy year. This option must be applied for at the time of issue of the base policy
- Children’s term rider (or child rider life insurance) – An optional policy rider that provides level term insurance on children or the lives of the primary insured.
- Guaranteed insurability option – An amendment to a life insurance policy that gives the policy owner the right to purchase additional insurance of the same type as provided in the original policy. The additional insurance amount, based on terms outlined in the policy, can be purchased at specified ages and rates without providing new evidence of insurability
- Other insured rider – An optional policy rider that provides convertible term insurance for a spouse or immediate family member of the primary insured.
- Primary insured rider – An optional policy rider that provides level term insurance on the primary insured. When the Primary Insured Rider is combined with base coverage, it can reduce premium costs for the amount of coverage as compared to the cost of a permanent life insurance plan of the same face amount. For the same premium, it can improve policy performance on universal life or variable life insurance policies.
- Waiver of monthly deduction – An optional life insurance policy rider that waives the monthly Cost of Insurance charges on a universal life or variable universal life policy for the length of a qualified disability as outlined in the policy contract.
- Waiver of Specified Premium – An optional life insurance policy rider that waives a specified premium on a traditional product for the length of a qualified disability as outlined in the policy
- Severe Cognitive Impairment
- A loss of mental capabilities due to illness or injury.
- Suicide Clause
- An agreement in a life insurance policy defining a carriers liability in the event of a policyholder’s death by suicide.
- The individual responsible for reviewing life insurance applications and assigning applicants to a rate class.
- The process of review used by life insurance companies for each new policy application. Learn more about the factors of the underwriting process.
- Underwriting Guidelines
- Guidelines to determine the appropriate rate class, which define the premiums for your life insurance coverage, along with age and gender.
Questions? We Are Here To Help
At Whidbee Insurance Group we are committed to making Life Insurance a simple and easy to understand way to financially protect your loved ones. We are here to answer your questions and help you choose the plan that makes the most sense for your life.