Insurance Terms

Accelerated Benefits:

Accelerated benefits are also known as benefit advance riders. An accelerated benefit provides an advance of the policy’s death benefit prior to death, terminal illness or nursing home confinement. This advanced insurance benefit is paid only under certain specific circumstances. Eligibility requirements and calculation of insurance benefit amounts are listed in the life insurance policy and vary by each life insurance company.

Accidental Death Benefit Rider:

This accidental death benefit rider pays the regular life insurance policy amount and a life insurance benefit if death occurs as a result of an accident.

Annuity:

There are two types of annuities: deferred annuity and immediate annuity. Deferred annuity consists of a life insurance policy that accumulates premium deposits for payment of a future income. Immediate annuity is an insurance policy that provides a periodic income guaranteed by the life insurance company for a specified period of time. 

Applicant:

An applicant is an individual who applies for a life insurance policy. Life Insurance Policies can be applied for as individual insurance policies, a trust policy or a business policy. 

Application:

An application is a form filled out by the applicant when purchasing life insurance. The life insurance application includes questions about health, family history, occupation, hazardous sports, motor vehicle record, income and more. The application also requires one’s signature in various places.

Back Dating:

Many well respected insurance companies will allow an applicant to request a term policy earlier than their application date in order to get a lower life insurance rate. Age, for life insurance premium purposes may be based on the applicant’s last birthday or nearest birthday. In most states, the maximum length of time that a policy can back date is six months. If a policy is back dated to save age, all premiums that would have been paid during the back dated period will need to be paid when the policy is issued. This can be a great deal of money one must return, so it must be considered carefully.

Beneficiary:

The party who will receive the benefit in the event the insured dies.

Cash Surrender Value:

Cash surrender value is the amount that a policy owner may receive if they cash surrender or cancel a permanent life insurance policy. The net amount payable is the cash surrender value reduced by outstanding policy loans, loan interest, or any prior withdrawals taken from the policy.

Conditional Receipt:

Applicants may want to submit the initial premium payment with the application and receive coverage prior  to the issue of the policy. The conditional receipt is found inside the life insurance application and it explains the insurance company's terms and conditions for death benefit payment. Consumers should be forewarned that life insurance companies will limit the maximum amount of coverage under a conditional receipt and have very specific qualifications that must be met. Be sure to carefully read the conditional receipt page in the application.

Contestable period:

A life insurance company may contest a death claim for a specified period of time after the policy is in force. The contestable period is stated in the policy and is subject-to state regulations. Nearly all life insurance companies also carry a suicide provision stating that a claim will not be paid if death is a result of suicide within the first two years of the policy.  The most common contestable period is two years.

Death Benefit:

The amount paid by the insurance company to the beneficiary when the person insured under the policy dies. The benefit can include the original or basic policy death benefit, dividends, and supplemental benefits. The total of all these benefits will be reduced by any outstanding policy loans, loan interest, prior policy withdrawals, or benefits paid under an accelerated benefit rider.

Family Benefit Rider:

A family benefit rider is also known as a spousal or child rider. This offers an additional death benefit on a spouse and/or on dependent children. When considering a benefit for a spouse, it is worth considering two separate term policies from the same company because some companies may have a "spousal discount" which can save considerable amounts of money, and may be less expensive than a family benefit rider.

Free Look:

All states mandate that an insurance company provide every new policy owner with a free look period. During this time, a policy owner may return the new policy to the life insurance company for cancellation for any reason. If a premium was already paid, the applicant will receive a full refund. The free look period is stated in the policy.

Fraud:

Intentionally providing false information to an insurance company when applying for insurance.

Lapse:

The termination of coverage when premiums are not paid on time. In general, the insurance company must receive the premium payment within thirty days of the due date.

Level premium:

Many term policies provide a level premium for a period ranging from ten to thirty years. Most policies offer a rate guarantee for a specific number of years that may or may not extend over the entire level premium period. Consumers should be aware that some level premium term policies do not provide a full premium guarantee. For example, only ten years may be guaranteed on a fifteen year level term policy.

Life Insurance:

A binding contract in which an insurance company promises to pay a death benefit in the event the person insured under the policy dies. Life insurance protects against economic loss in the event of death.

Mode of Premium Payment:

Life insurance companies offer the insured to pay their premiums in a variety of forms: annually, semi-annually, quarterly, monthly, or by automatic monthly bank draft.

Non-Smoker Rate Class:

Non-smoker rates may be obtained if a life insurance applicant has not used any form of tobacco for at least one year prior to applying for insurance.

Policy:

The written contract between the insurance company and the policy owner. The policy includes: statement of policy benefits and provisions, tables with guarantees of premiums and/or cash values, precise language explaining policy benefits and any riders or supplemental benefits, and a copy of the application as completed by the insured and/or policy owner. This is an official document.

Policy Owner:

The person or entity that owns the policy. The policy owner can be a variety of people: the insured, a family member, a business associate, an employer, or a trust.

Rate Class:

Insurance companies offer varied rates reliant on upon personal history, current health, family history, occupation, hazardous activities, and other factors. The three types of rate classes are: standard, preferred, and super preferred. "Standard" is the rate class for people who are in average health. “Preferred” is for people in better than average health and who meet additional insurance company criteria. Premiums for the preferred class are lower than a standard premium. “Super preferred” are for people in excellent health. The super preferred class is the most difficult to qualify for and offers the lowest possible rates. For example, a super preferred applicant must not use tobacco, and meet the insurance company's height and weight, cholesterol, blood pressure, personal history and family history requirements.

For people with special circumstances, such as medical history, a current medical condition, or a hazardous occupation or sport, the life insurance company may charge an additional amount to cover a special risk. The added premium is called a rating, or special risk class. If the condition or circumstance that caused the rating improves, the life insurance company may, at their sole discretion, reconsider the rating after a specified period of time.

Reinstatement:

Subject-to the life insurance company's guidelines, a policy owner may apply to reinstate a lapsed policy. A reinstatement generally requires an application, medical evidence to confirm good health, and payment of back premiums. The insurance company has the right to decline or reinstate a lapsed policy if the former insured has developed health or other problems.

Renewable Term Policy:

The premium on a term policy may be level for a limited period of time, yet a policy owner can continue their policy and pay premiums. Many term policies can be renewed up to age 95, however, the premiums increase annually after the level guarantee ends, and will become extremely expensive. What can a policy owner do if their need for coverage will be longer than the level premium on their term policy? One alternative is to consider a term conversion to a permanent policy. Consumers should be aware that a term conversion option may not be available beyond a certain number of years or above a maximum age.

Replacement:

Replacing consists of cancellations, lapses, reductions and substantial changes for existing life insurance when buying a new policy. States have specific rules regarding the replacement of existing life insurance. A disclosure must be given to the applicant and in many states, a comparison of policy features must also be completed. Make sure to never cancel existing insurance until a satisfactory replacement policy has been issued, delivered, and is in force.

Rider:

A supplemental benefit that may be added to a policy is known as a rider. Some riders are waiver of premium upon total disability, accidental death benefit, family or child rider, and the accelerated benefit rider.

Sales Illustration:

A form from the insurance company that illustrates the premiums, benefits and values of the proposed policy. Sales illustrations must meet the terms of state regulations and enclose clear disclosure of both guaranteed and non guaranteed features of the policy. Most life insurance companies now require an applicant to sign the illustration and include it with the application.

Suicide Provision:

If the insured takes their own life within a specified period of time after buying a policy, the life insurance company will not pay a benefit. Typically the provision is in effect for the first two years after the policy effective date. Check the information the policy for specific details.

Term Insurance:

A policy that pays a benefit only if the insured dies during a specified period of time. Term insurance is only a death benefit plan and offers no cash values. Consumers needing to find a low premium for a limited amount of time may find that term life insurance is best suited for them.

Underwriting:

The evaluation of the applicant’s information.  At this time the insurance company will determine if they will offer insurance and if so, at what rate class. The life insurance company considers information in the application, medical exam, lab results, motor vehicle report, consumer interview /or inspection as well as information from attending physicians.

 

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