Life Insurance Policy Glossary

Life Insurance Policy Glossary

Learning the Lingo of Life

The terms you need to know before you sign up for a life insurance policy.

There’s no shortage of books and other references to consult if you want to learn more about life insurance. In fact, there are two basic types of life insurance policies: term insurance and whole life insurance. All other types of policies are variations of these two types. We consulted a few insurance primers and publications put out by various insurance and business groups to adapt this glossary:

Accelerated death benefits: Benefits available in some life insurance policies before policeholder’s death.

Accidental death benefit: A provision added to a life insurance policy for payment of an additional benefit in case of death as a result of an accident. This provision is often called “double indemnity”.

Annuity: A life insurance product that provides an income either for a specified period of time or for a person’s lifetime.

Beneficiary: The person of financial instrument (a trust fund, for example) named in the policy as a recipient of insurance money in the event of the policyholder’s death.

Cash value (cash surrender value): The amount available in cash upon surrender of a policy before it becomes payable upon death of maturity.

Cash-value insurance: “Cash-value” insurance is any life insurance product that offers some opportunity to accumulate cash value, in addition to ensuring a death benefit.

Convertible term insurance: Term insurance that offers the policyholder the option of exchanging it for a permanent plan of insurance without evidence of insurability.

Cost index: A way to compare the costs of similar life insurance plans. A policy with a smaller index number is generally a better buy than a comparable policy with a larger index number.

Dividend: Dividends are a partial or full refund of premiums paid to owners of certain kinds of participating life insurance contracts.

Face amount: The amount stated on the face of the policy that will be paid in case of death or at maturity. It does not include dividend additions or additional amounts payable under accidental death or other special provisions.

Group-term insurance: Group-term insurance typically is provided by or through your employer. It has several potential advantages. It can be inexpensive if your employer pays the premiums or subsidizes it. And the only thing you have to do to join is sign the application – you do not have to pass a medical exam. The downside: If you lose your job, you generally lose your insurance.

Guaranteed insurability: An option that permits the policyholder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

Guaranteed permanent life insurance: Sometimes called “whole-life”, guaranteed permanent insurance provides a death benefit until the age of 90 or 100 as long as you pay fixed premiums that cannot have unscheduled increases. Guaranteed-permanent products can build substantial cash values over time.

Joint life insurance: Joint life insurance – also called survivorship life or “second-todie” insurance – covers two lives (typically a husband and wife) and pays and benefit only after the second death.

Level premium insurance: Insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlir years of the policy and less than the actual cost in later years.

Load: The amount of your premium that is taken out to cover administrative costs, commission and premium taxes in a lump sum. The load generally is taken at the beginning of a policy, but sometimes in the middle or even at the ending of the policy. Depending on the company, the load is either a percentage of the worth of the policy or a percentage of the cost.

Paid-up additions: Paid-up additions are increments of guaranteed-permanent insurance on which all premiums are paid in one lump sum.

Policy riders: Riders are optional features you may add to your policy for an increase in premium.

Re-entry term insurance – re-entry term insurance products appear to be guaranteed renewable, but require steep premium increases at specified intervals, such as every five years, unless you pass a medical examination.

Renewable term insurance: Term insurance providing the right to renew at the end of the term for another term or terms, without evidence of insurability. The premium rate increase at each renewal ast the age of the insured increases.

Term insurance: Term insurance pays your survivors a death benefit if you die while the contract is in force. It is often called “pure” insurance because it offers only a death benefit with no savings component.

Universal life insurance: Universal life is a form of cash-value insurance that combines term insurance with a “side fund” that is credited with earnings.

Variable life insurance: Variable life encompasses a variety of cash-value products that allow you to decide how to invest your policy’s cash values. You can choose among options offered by the insurance company – typically stocks, bonds, fixed-rate funds, or money market funds – and participate directly in the investment results.

Waiver-of-premium benefit – a waiver-of-premium rider keeps your life insurance protection in place by paying the policy premiums if you became disabled.

If you forget everything else about buying life insurance, remember to ask how much you’d get if you cashed in your policy after one year – the so-called cash surrender value.” (Glenn Daily, insurance expert). Photo: Megan Jorgensen (Elena)

Taking Out a Lifetime Contract

Are premiums guaranteed not to increase?

Yearly renewable term: No, they will increase.

Re-entry: No, they will increase.

Group-term: No, they will increase but employer may pay cost.

Universal life: There is no fixed premium.

Term/guaranteed permanent: Yes, for guaranteed-permanent, but not for term.

Guaranteed permanent: Yes.

Is there an asset accumulation element:

Yearly renewable term: No.

Re-entry: No.

Group-term: No.

Universal life: Yes.

Term/guaranteed permanent: Yes.

Guaranteed permanent: Yes.

Can I continue the coverage if I get sick?

Yearly renewable term: Yes, for the period of renewability.

Re-entry: Yes, prior to re-entry; thereafter at a high cost.

Group-term: Yes, while you remain employed; thereafter at a high cost.

Universal life: Yes.

Term/guaranteed permanent: Yes.

Guaranteed permanent: Yes.

Does the insurance company guarantee my coverage will last?

Yearly renewable term: No, generally not available after age 70 and usually too costly after age 60.

Re-entry: No, generally not available after age 70 and usually too costly after age 60.

Group-term: Yes, but employer may provide reductions beyond a certain age.

Universal life: As long as the side fund is not exhausted.

Term/guaranteed permanent: Yes, for the guaranteed-permanent portion, but not for term.

Guaranteed permanent: Yes.

(Certain level-term contracts have premiums that are given for a fixed period, such as 10 years).

They also must have life insurance! Photo by Elena.