Insurance

Life insurance terminology explained

Life insurance terminology explained

You’re not alone if you started looking for information on life insurance but were soon met with words you didn’t understand. Terminology used in life insurance may occasionally be very confusing. To better understand life insurance and how it functions, the terminologies and definitions listed below are crucial.

You’ll be better equipped to make more educated judgments while looking for life insurance coverage if you are familiar with the phrases listed below.

Accelerated Death Benefit Rider Glossary of Life Insurance Terms

If the insured has a qualifying terminal disease, the death benefit may be paid under this policy addition before the insured passes away.

Actuary

An expert in insurance mathematics who figures out rates, reserves, and other factors.

Agent

A qualified agent who offers insurance products in one of two categories:

  • An independent agent works on behalf of many insurance providers and provides clients with services by comparing prices for the broadest possible coverage.
  • A career agent exclusively works for one firm and only sells insurance from that company.

Assets

“All the accessible properties of every sort or property of an insurance business that may be used to settle its debts” is the definition of an insurance company’s assets. Bonds, stocks, property, money due to the business, and even office furniture may be included in this. A company’s financial strength is often reflected in the quantity of assets it owns.

Attained Age

Calculating an applicant’s insurance age using their attained age. This approach is based on the insured’s real age and this technique, often known as real age or age as of last birthday, employs the insured’s actual age.

Application

The intended insured must fill out and submit an application form(s) to the insurance company in order to get life insurance.

Attending Physician Statement (APS)

Details on a potential insured’s medical history and the findings of any physical examinations submitted by the proposed insured’s doctor. It is used to establish the potential insured’s proper underwriting categorization.

Beneficiary

The individual or group designated by the policy’s owner to receive the policy benefit.

Broker

An authorized agent who offers insurance plans. Brokers can offer goods from many insurance providers and shop the market for their clients.

Shareholders

Shareholders’ capital in a stock insurance company. The gap between the company’s assets and liabilities serves as a proxy for the capital and surplus of the business. This “cushion” serves as a source for dividend payments to shareholders and investments in new businesses, as well as serving to safeguard the interests of the company’s policyowners.

Cash Price

There are certain life insurance plans that allow money to build up in a cash value account. These are often permanent policies like whole life, universal life, or variable universal life insurance. A portion of your payment goes toward a cash value account that grows tax-deferred over time in addition to providing insurance coverage.

Rider for kids

Families with children are covered by life insurance under this add-on option to the policy.

Claim

Formally requesting that the insurance company pay the benefit that is owed in accordance with an active insurance policy.

Commission

A commission calculated as a proportion of the insurance policy’s premium. Depending on the coverage, the insurer, and the marketing strategies, the percentage varies greatly.

Alternate Beneficiary

The person selected to receive a life insurance policy’s proceeds when the insured passes away if the primary beneficiary has already passed away.

Policy for Convertible Term Insurance

A term life insurance plan with the option for the policyholder to switch it for a permanent insurance plan.

Coverage

The extent of security covered by an insurance policy. Living and death benefits are stated in life insurance.

Convertible

Regardless of the physical state of the insured and without a medical evaluation, convertible term life insurance coverage has the ability to be changed into permanent insurance. For any health issues, the person cannot be denied coverage or have the permanent plan’s premiums increased.

Funeral Benefit

The sum of money that, in the case of the insured’s passing, the insurance company will give the beneficiary.

Proof of Insuranceability

Evidence that a person is a risk that is insured.

Face Value

The value of the insurance. It is related to the death benefit since it specifies how much money will be paid to the beneficiary in the event that the insured passes away.

Final Charges

Funeral fees, hospital bills, or other debt-related costs toward the end of life.

Free Look Allowance

A clause in a personal life insurance and annuity contract that permits cancellation of the policy and receipt of the full amount paid in premiums within a certain period of time, often 30 days after the policy is delivered.

Gratitude Period

The period of time after a premium is due and unpaid during which the policy, including all riders, is still in effect. For term plans, this period is typically 31 days. A premium is regarded as having been paid on time if it is paid during the grace period.

Group Life Insurance Coverage

Insurance products that are made available to members of a group, usually through their job.

Assurance of Issue

Even if a candidate is ill, he or she cannot be rejected at the application stage.

Assurance of Premiums

You’ll always know how much you’re spending because your rates won’t increase unless you change your insurance.

Unquestionability Clause

A clause in a life insurance policy that sets a time restriction on how long the insurer has to void the policy if the applicant made serious misrepresentations in the application.

Insured

The person who is protected by the insurance contract.

Irrevocable Beneficiary

A beneficiary of a life insurance policy who is entitled to the policy proceeds even while the insured is still alive since the policy owner can only modify the beneficiary designation with the beneficiary’s approval.

Guaranteed Interest

The stake a recipient of an insurance policy has in the risk being covered. When the recipient of a life insurance policy is expected to profit from the insured’s continued existence and is likely to suffer some loss or harm if the insured passes away, the beneficiary has an insurable interest in the insured.

Lapse

The cancellation of an insurance because a premium was not paid.

Life insurance with a fixed rate

A term life insurance policy with guaranteed-level premiums for the whole period of the policy.

Health Insurance

An agreement between a person and an insurance business wherein the insurer promises to pay a specific beneficiary a certain amount of money in the event that the insured passes away.

Material Falsification

A false statement that would influence how the insurance company assessed a potential insured.

Health Checkup

A quick examination carried out by a medical practitioner that can be done at the applicant’s residence, place of employment, etc. The insurance provider may occasionally demand this free test before providing coverage. Also known as a paramedical or paramedical examination.

Mortality Tables

Statistics that record fatalities in a population by age relative to those still living at that age are used to create mortality tables, which are charts that display the death rates of a certain group of people at specific ages.

Non-Tobacco/Non-Smoker

Every insurance policy with an insured who has been identified as not using tobacco or nicotine products is assigned a risk class.

Payor

The individual who is funding the insurance contract.

Continuous Life Insurance

Life insurance that offers coverage for the duration of the insured’s life and maybe includes a monetary value

Policy

The written insurance policy that specifies the obligations of both the insurer and the insured.

Anniversary of policy

The day an insurance policy’s coverage began to apply, generally speaking.

Premium

The cost of insurance coverage for a specific risk over a specific time period.

Suggested insured

A person making a life insurance application.

Quote

The anticipated premium for a candidate taking into account factors like age, gender, coverage quantity, etc.

Renewal

Automatic restoration of inforce status brought on by the payment of additional premiums.

Rider

An addition to an insurance policy that forms a part of the insurance agreement and either increases or decreases the benefits that will be paid out under the terms of the agreement.

Risk Level

In the context of insurance underwriting, a risk class is a collection of insureds with comparable levels of risk. Preferred, standard and substandard, smoking and non-smoking, and male and female are the typical underwriting classes. Additionally known as a rating class or an underwriting class.

Paragraph 1035 Exchange

The Internal Revenue Code provision that permits owners to replace a life insurance or annuity policy without triggering a taxable event is the one that is being discussed here.

The Internal Revenue Code’s Section 7702

Outlines the requirements that a life insurance policy must meet in order to be treated as a tax-advantaged life insurance contract.

Charge of Surrender / Surrender

When a life insurance policy or annuity is surrendered for its cash value, a fee is assessed to the policyholder. This charge covers the costs of adding the policy to the insurance company’s books as well as any further administrative costs.

Life Insurance, term

Life insurance that offers coverage for a predetermined time. The typical lengths of an insurance are 10, 15, 20, and 30 years. Term insurance policies often don’t accumulate any of the nonforfeiture values connected to permanent life insurance policies.

Underwriter

The person skilled in assessing risks and establishing prices and coverages for them.

Underwriting

Picking risks for insurance and categorizing them based on their levels of insurability in order to determine the right prices. Rejection is another step in the procedure.

Continuum Life Insurance

A life insurance plan that provides for flexible premium payments, which may have an impact on the payout of benefits and/or the duration of coverage.

Contingent Life Insurance

A type of life insurance whose face value and/or cash value change based on the value of the equity products or securities that underlie the policy and are invested in separate accounts, the total of which is the policy’s cash value.

Life insurance that is variable

A contract that combines the benefits of universal life insurance with variable life insurance. Benefits are depending on the value of the underlying separate accounts, and the policyholder has the opportunity to change both the premiums and the benefits.

Abrogation of Premium

A clause in the insurance contract that, if the insured becomes handicapped for six months, waives the premiums. When the disability is over, premium payments start up again. Each insurance provider determines what qualifies as a disability.

Integrated Life Insurance

A type of perpetual life insurance that grows cash value throughout the course of the policy and offers a flat death payment upon the insured’s passing.

Oluwatobi Moses

Oluwatobi Moses is an entertainment blogger who's passionate about storytelling. He likes to read, research, hang out with his friends and play chess.

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