Term Life Insurance Terms & Terminology
Life insurance provides money to the people you designate should you die unexpectedly. It's a way to continue taking care of loved ones and obligations and can help prevent devastating financial problems. However, while the idea of life insurance is fairly simple and straight forward, trying to define term life insurance terms and terminology can be challenging.
This glossary of common life insurance terms provides detailed definitions of common terms you will encounter during the process of securing term life insurance. I can help define term life insurance terms and terminology so you better understand your options.
An optional provision in a life insurance policy that allows a specified percentage of the death benefit to be paid prior to the insured's death, if a doctor certifies that the insured's life expectancy is limited (usually 12 months or less).
An authorized representative of an insurance company who solicits and services insurance contracts. Also known as an Associate.
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 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.
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.
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.
The amount that the policy will pay to the insured's beneficiaries in the event of the death of the insured.
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.
The effective date of the policy or contract as issued by the insurer.
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.
The life insurance phrase to describe the 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.
The "insured" is the person who is covered by a life insurance policy.
The termination of an insurance policy resulting from nonpayment of premiums or, in the case of variable life and universal life insurance policies, the depletion of cash value below the amount needed to keep the policy in force. Under certain circumstances, coverage might continue under a settlement option.
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.
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.
A premium is the payment you make to the life insurance company for your life insurance coverage.
Premium payments can typically be made monthly, quarterly, semi-annually or annually. The time period you choose is known as your "premium mode".
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).
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.
A rated policy is one issued on a substandard risk with higher-than-standard premiums.
A written agreement attached to a life insurance policy or annuity contract that limits or expands the policy's or contract's terms or coverage. Riders 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 children's insurance benefit) - 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
Underwriting is the process that life insurance companies undergo for each new life insurance application. They use a set of guidelines to determine the appropriate rate class and can then define the premiums for your life insurance coverage.