Glossary of Life Insurance Terms
Asset: Any item of value that you own: house, land, stocks, bonds, money in savings, permanent life insurance, etc.
Beneficiary: The person, persons, company or institution you designate to receive the proceeds of an insurance policy upon your death.
Benefit Period: The time during which an insurance company will pay benefits to the person who owns the policy or the beneficiary.
Cash Value: The amount of money a permanent life insurance policy is worth while the policyowner is still living. As the policyowner pays premiums to keep the coverage, this value increases over time, tax deferred.
Conversion Right: A feature that gives the policyowner the right to change a term life insurance policy to a permanent life insurance policy without further underwriting. The premium for the permanent policy will be higher than the term premium; however, once the new payment amount is set, it may be guaranteed to never increase. The permanent life insurance policy premium will be based on your health status when you initially bought your term policy and your age at the time you choose to convert.
Death Benefit: The amount of money paid to a beneficiary when an insured person passes away.
Dividend: Money that may be paid to policyowners based on an insurance company’s favorable performance. Insurance companies set premiums and establish benefits based on a certain set of assumptions. Each year, if the company’s actual results turn out better than what was assumed, policyowners may share in those favorable results through dividends. With a permanent life insurance, a policyowner can use dividends to increase the value of his or her policy, apply them to the cost of coverage (premiums) or even take them in cash. Not all insurance companies pay dividends, and dividends are not guaranteed.
Evidence of Insurability: Information used to determine if an applicant will be approved for coverage. Usually, this information includes your medical history, current health status, occupations, foreign travel information, etc.
Face Amount: The amount stated on the insurance policy that is to be paid upon death.
Insurance: A type of policy that can help protect you from an event that costs a large amount of money. Depending on the amount of your insurance coverage, the policy will pay you money to cover the cost of these events.
Insured: The individual covered by the insurance purchased.
Level Premium: A payment amount that remains the same for the duration of the policy.
Life Insurance: A type of insurance policy that provides financial protection in case of death. People buy life insurance so if they die, their family or loved ones will receive money that can help cover funeral costs, pay off debts and/or help maintain the way they are living today. When a person dies, the life insurance company pays a pre-determined amount to the listed beneficiary. The two most common types of life insurance are term life insurance and permanent life insurance (which includes whole life insurance).
Living Benefits*: How the cash value of a permanent life insurance policy can be used while the insured person is alive.
Mutual Insurance Company: An insurance company that is owned entirely by its policyowners. As a result, a portion of the company’s operating gains can be distributed to these policyowners in the form of dividends.
Payer: Person who pays the premiums of the policy.
Permanent Life Insurance: Life insurance that lasts for the life of the insured person (as long as premiums are paid) and provides payment of benefits upon death. Examples of permanent life insurance include whole life, universal life and variable life insurance.
Policy: The written contractual agreement between the policyowner (who may not be the person who is insured) and the insurance company.
Policyowner: The person who can make changes to the policy.
Policy Rider: An amendment to an insurance policy that becomes part of the insurance contract and that either expands (additional benefits at an additional cost) or limits the benefits payable under the contract.
Premiums: The premium is the amount that must be paid to keep a life insurance policy in force. In return, the company agrees to pay a death benefit when the insured person dies.
Term Life Insurance: Life insurance that provides a death benefit only if the insured person dies during a set period of time (say 10 or 20 years). Once that term expires, no benefits are available.
Underwriting: The process an insurance company uses to evaluate the risk of insuring a particular person and to set the premium for that person’s insurance policy.
Universal Life Insurance: A type of insurance that combines the benefits of permanent life insurance (which grows cash value over time) with the convenience of an adjustable death benefit and adjustable premiums and payment schedules to meet both insurance and financial goals.
Variable Life Insurance: A type of permanent life insurance that allows the policyowner to allocate funds among investment options provided by the insurer. The cash value of the policy reflects the performance of the selected investments. This type of insurance offers the potential for greater cash value and an increasing death benefit but comes with market risk.
Whole Life Insurance: A type of permanent life insurance that has a fixed premium (or payment amount) for the life of the policy. This type of policy builds cash value that the policyowner may be able to use while alive.