Life Insurance Terms Defined

Here is a breakdown of life insurance terms along with the respective definitions, one-by-one. If i have missed any terms that you would like to know the meaning or that i could add here, please send it over and ill add it on as soon as i can.

Application for insurance

This is the form on where you state information and answer questions from the insurance company about yourself and your history. This application along with information from a medical examination, if taken, from your physicians, any hospitals you may have visited and investigation are what’s used by the insurance company to decide whether or not to offer you life insurance and at what rate.

Beneficiary
The person(s) named in the policy to receive the life insurance proceeds upon the death of the insured.

Cash Value
The amount that is available in cash for loans and that may be available for withdrawals in a whole life insurance, universal life insurance or survivorship life insurance policy. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Face Amount
The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

Grace Period
Life insurance premiums are due on a certain date, if you are late in paying, policies allow a period of time where you can still pay your premium and not lose your polcy. This is the grace period. Most policies allow a grace period of 30 days from the due date. After the grace period, if the premium is not paid, the policy can lapse i.e. be terminated by the insurance company.

Key person life insurance
When one has a key person in a business without whom the business would suffer financially, key person life insurance is often purchased which helps to reimburse the company for the business loss incurred by the death of this person.

Level Premium (Life Insurance)
Life insurance for which the premium remains the same from year to year. The premium is normally more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Mutual life insurance company
A life insurance company owned by the policyholders. Policyholders of a mutual life insurance company may participate in the “divisible surplus” of the life insurance company as owners. They can receive dividends, most commonly on whole life policies, which can enhance the cash value, increase the insurance amount or lower premiums.

Owner of a life insurance policy
A life insurance policy can be owned by the insured person or an individual, a company or a trust with an insurable interest in the insured person. Insurable interest means there would be a financial loss by the owner in the event of the death of the insured person.

Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.

Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer (see also Dividend.)

Permanent Life Insurance
Any form of life insurance except term; generally insurance that builds up a cash value, such as whole life. Universal life and whole life are types of permanent life insurance.

Premiums
Payments to the insurance company to buy a policy and to keep it in force.

Renewable Term Insurance
Term insurance which can be renewed at the end of the term, at the option of the policy owner and without evidence of insurability, for a limited number of successive terms. The rates generally increase at each renewal as the age of the insured increases.

Return of premium life insurance
Also known as return of premium term life insurance, this is term life insurance for a period of time where one receives a guaranteed return of premiums paid if you keep the policy for the term period.

Survivorship life insurance
Life insurance purchased on two individuals, usually man and wife, where the life insurance benefit is paid after both individuals have died. This type of life insurance became popular as a solution to paying estate taxes. The estate tax law allowed a couple to delay paying estate taxes until both had died.

Term life Insurance
Term insurance is life insurance coverage for a specified period of time. This can be at a guaranteed rate or in some cases a guaranteed rate for a period of time and then a projected rate. Term periods can be for 1 year, 5 years, 10 years, 15, 20 and even 30 years.

Universal life insurance
Universal life insurance is permanent life insurance with premiums that are not guaranteed. To a certain degree one can “design” a premium on this type of policy. Universal life insurance often can be set up with a lower premium initially than whole life insurance.

Whole life insurance
Life insurance which has a guaranteed level premium for the rest of one’s life with no increases in premium, with a guaranteed cash value. There is participating whole life insurance usually issued by a mutual life insurance company where one participates as an owner of the company and there is non-participating whole life insurance issued by a stock life insurance company.