Annually renewable Term (ART)
This type of Term Life Insurance automatically renews every year, at a somewhat higher price each year. Most level premium Term products become annually renewable Term after the initial level premium period is over. They are generally renewable up through the age of 95 or 100.

Beneficiary
The person or entity that will receive the proceeds (also called death benefit or face amount) of a Life Insurance policy. A policy can have multiple beneficiaries. The policy owner must state how the proceeds will be divided among beneficiaries. The owner can also name one beneficiary as primary and another beneficiary as contingent (See below.).

Cash value
The interest-earning side fund within a Permanent Life Insurance policy.

Contingent beneficiary
A secondary beneficiary to a policy. The contingent beneficiary will only receive money from the policy if the primary beneficiary dies before the insured.

Conversion right
A feature that allows the owner of a Term Life Insurance policy to exchange it for a Permanent Life Insurance policy. Usually, the right can be exercised within a limited time period—for example, up to age 60, or for the first fifteen policy years. The premium for the permanent policy will be higher than the Term premium was, but the new premium will never increase and the permanent coverage can't be cancelled, except in the event premiums aren't paid. A Permanent policy will develop a cash value.

Death benefit
The amount the policy will pay to the beneficiaries when the insured dies. It can be referred to as the face amount.

Face amount
The amount the policy will pay to the beneficiaries when the insured dies. It's the same as the death benefit.

Insured
The person whose life is covered by the policy and whose death will trigger the payment of the death benefit to the beneficiaries. It is the insured whose health, driving record, etc. will be examined during the underwriting process. The insured and the owner are usually the same person, but not always.

Level premium Term, level premium period
The most popular type of Term Life Insurance policy, with rates that remain level for the period stated—usually 10, 15, 20 or 30 years. Most buyers retain this policy only until the end of the term of coverage. At that point, an annually renewable Term rate schedule immediately goes into effect with much higher premiums that increase every year thereafter.

Owner
The person (or entity or trust) that owns a Life Insurance policy. The owner and the insured may or may not be the same person. The owner is responsible for paying the premiums and has the right to name and change the beneficiary(ies).

Permanent Life Insurance
A policy designed to end when the insured dies—not in a stated number of years, as with Term. There are many varieties of Permanent Life Insurance including Whole Life, Universal Life, and Variable Life.

Policy
A contract between the owner of a Life Insurance policy and the Insurance company, by which the company agrees to pay a death benefit when the insured dies (in the case of Permanent Life Insurance) or if the insured dies within a stated time period (in the case of Term Life Insurance).

Premium
Payment made to the Insurance company to put, and keep, a Life Insurance policy in force. Premium payments are typically made annually or monthly. Semi-annual and quarterly payments are also available. They can be made by check, credit card or bank draft, depending on an Insurance company's guidelines.

Primary beneficiary
If the policy owner names one beneficiary as primary and another beneficiary as contingent, the primary beneficiary will receive all the money from the policy unless he or she dies before the insured. In that case, the money will be paid to the contingent beneficiary. One or more persons can be named as primary beneficiaries.

Return of premium (ROP)
This Term Life Insurance policy returns all premiums (except for amounts paid for riders, extra benefits or surcharges for higher-risk clients) at the end of the level-premium period or Term, when the policy is cancelled. Some policies pay a partial ROP if the policy is cancelled before the end of the Term. This type of policy is more expensive than a regular Term policy.

Rider
Coverage or benefits that are added to the base policy, at an extra price. Examples include child riders, which provide a death benefit if a child dies, accidental death benefits, which pay extra if the insured's death is the result of an accident, or waiver of premium disability riders.

Term
The time period a Term Life Insurance policy is expected to last, usually 10, 15, 20 or 30 years with the same premium. At the end of the Term, which is technically called the level premium period, the policy does not automatically end, but most people cancel it because an annually renewable Term rate schedule immediately goes into effect that causes your rate to significantly increase. Your premium will continue to go up every year thereafter until the policy expires, which is usually until you reach the age of 95 or 100.

Term Life Insurance
Life Insurance designed to be temporary. Usually purchased to cover Term periods of 10, 15, 20 or 30 years.

Underwriting
The process by which a Life Insurance company decides whether it will accept the risk of issuing a policy on the applicant. A company underwriter will review the information on the application, review the results of the physical exam and possibly access relevant information in public databases and records, such as Bureau of Motor Vehicles records, to determine, first, whether to take on the risk and, secondly, what price to charge.

Universal Life Insurance
A form of Permanent Life Insurance is distinguished by generally having variable premiums, benefits and payment schedules. The interest rate on the account value can be changed from time-to-time and generally reflects market interest rates and the performance of the Insurance company's investment portfolio.

Variable Life Insurance
A form of Permanent Life Insurance that permits some or all of the fixed premium payments to be held in a separate account. These held funds are then invested in one or more investment options provided by the insurer and selected by the policyholder. The policy value reflects the performance of the selected investments, though there is a guaranteed minimum benefit payment.

Whole Life Insurance
A form of Permanent Life Insurance that has a fixed premium rate for the life of the policy and holds cash reserves that may be paid out to the policyholder under a policy surrender, partial surrenders, or policy loans. The cash reserves earn a fixed rate of interest.

<< Back